As the new year dawns, so do the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (ER Regulations 2024) which come into force on 1 January 2024 with the aim of simplifying annual leave and holiday pay calculations.
These new laws will permit rolled up holiday pay, codify European case law around what is to be included in holiday pay, move away from the position of the Court of Justice of the European Union (CJEU) on record keeping of daily working hours, and change certain consultation requirements around 13A of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).
While the TUPE and record keeping changes will apply straight away, the changes to holiday pay kick in for leave years commencing on 1 April 2024 onwards.
This article looks at the current law around holiday entitlement and pay, and the specific changes around rolled-up holiday pay.
Holiday pay entitlement and pay explained
Until 31 December 2023, all UK workers were entitled to a statutory minimum of 5.6 weeks of paid annual leave under the Working Time Regulations 1998 (WTR) made up of 4 weeks of regulation 13 WTR leave (derived from the Working Time Directive), and 1.6 weeks of regulation 13A WTR leave (a UK construct, historically to take account of bank holidays, although not necessarily to be taken then).
The rate of pay for each week worked is calculated by applying sections 221 to 224 of the Employment Rights Act 1996 (ERA 1996). If a person works all year, full-time, each week is paid at their full-time rate. Similarly, if a person works full year, but part-time, each week of annual leave is paid at their part-time rate.
The last two paragraphs still apply to workers who are not irregular or part-year workers.
Payment for each week of leave continues to be based on established principles in ERA 1996 of average weekly pay if pay does not vary with work done. Otherwise, it is based on weeks worked in the previous 52 weeks for workers with no normal working hours, or with normal working hours but where pay varies with the amount of work done or the times or days on which it is done. Pay includes basic pay, any regular guaranteed overtime, commission, and bonus payments following decisions such as Lock andFlowers and this has been codified in the ER Regulations 2024.
Hopefully you are still with me.
One of the reasons for this legislation is to overturn the position in Harpur Trust v Brazel (UNISON intervening) [2022] UKSC 21, where UNISON led arguments to secure 5.6 weeks of leave entitlement for all workers but with no pro-rata reduction for term-time workers. This resulted in irregular and part-year workers (i.e. school term-time workers) receiving an entitlement to 5.6 weeks paid at the regular weekly rate of pay.
Rolled up holiday pay for irregular and part-year workers
There is now a new scheme for irregular and part-year workers, and they will no longer enjoy a leave entitlement of 5.6 weeks.
Many employers employing particularly vulnerable and precarious workers and employment agencies have used this method of rolled-up holiday pay, even though it has been unlawful since the 2006 CJEU decision in Robinson-Steele v PD Retail Services and others [2006] IRLR 386.
The EU sees rolled-up holiday pay as going against basic EU principles, which not only allow the right to paid annual leave (Article 31 of the EU Charter of Fundamental Rights and Article 7 of the Working Time Directive) but envisages that workers must be in a position to take that leave. This idea of a social right to annual leave was strengthened by the 2009 CJEU decision in Stringer stating the purpose of taking annual leave was to enable a worker to rest and enjoy a period of relaxation and leisure (see paragraph 25).
According to the government’s impact assessment, the move to reverse the position for irregular and part-year workers, a cohort of largely low-paid and female workers, will see them lose between £50 million and £248 million in holiday payments per year.
The ER Regulations 2024 do the following: they allow workers with irregular hours, or part-year patterns to get rolled up holiday pay, that is to be paid 12.07% of each hour they work as part of their pay.
The sum of 12.07% is obtained by dividing the working weeks of a full year worker, (52 weeks - 5.6 weeks = 46.4 weeks. 5.6/46.4 = 12.07%). The Supreme Court, in Harpur, specifically rejected the employer’s argument that the statutory minimum paid annual leave entitlement should be calculated based on 12.07% of the annual hours worked, as this did not reflect the reality of the worker’s situation (if they worked 39 weeks, 5.6/39 = 14.36%).
Who is an irregular worker?
Rolled-up holiday pay applies to irregular and part-year workers. While most of us understand who part-year workers are (e.g. term-time only workers), regulation 15F of ER 2024 define irregular workers as those whose paid hours under contract are 'wholly or mostly variable'. What does that mean? While some employees may have fixed hours, it is not unusual for contracts to contain a catch-all requiring employees to be flexible depending on the needs of their employment.
While I cannot imagine this was the intention of parliament, are we all now irregular workers?
Irregular and part-year workers will no longer get four weeks' annual leave (regulation 13 WTR) and 1.6 weeks of additional leave (regulation 13A WTR) that workers with regular hours are still entitled to.
Instead, they are entitled to (deep breath) 'the amount of annual leave that they have accrued in that year, plus the amount of annual leave (if any) that they have carried forward into that leave year' (r.15B (2)).
Leave is accrued (regulation 15 B(3) (b)) 'on the last day of each pay period at the rate of 12.07% of the number of hours that they have worked during that pay period'. Where a holiday year is from 1 April - 31 March, if a worker is paid monthly, then they will only receive the entitlement and payment for leave in March at the end of March. If so, how, and when would that worker take their leave?
The uplift of 12.07% which serves as payment for leave is based on this: the average number of hours worked per week in the previous 52 weeks (or less if they have worked less).
With regards to entitlement, 'a worker cannot, in any leave year, accrue more than 28 days of annual leave under this regulation'. Calculations are supposed to be determined by hours worked, so how many hours should there be in a day?
Regulation 15B (6) says that annual leave may be taken in instalments, in the leave year they accrue. Clarity around what is an instalment would be good. Must leave be taken a week at a time? Does this mean an irregular worker cannot take the odd day off?
Workers are permitted to carry over their leave, but only if there is a relevant agreement (regulation 15D (2)), or if they could not take some or all of their accrued leave because they were on maternity/family leave or were off sick (but only for 18 months from the end of the leave year).
The ER Regulations 2024 have done away with the need for employers to keep records of daily working hours which will make calculations even harder, and could lead to conflicts if employees records differ.
The argument against rolled-up holiday pay is that it deters workers from actually taking their leave, and you can see why.
The rest of it…
If you are not an irregular or part-year worker, there are different rates at which workers will be paid for statutory leave: regulation 13 leave to include all pay, and regulation 13A at just basic pay.
Also, statutory leave may be carried over as follows: all 5.6 weeks if you’re on maternity/other family leave; regulation 13 leave only i.e. four weeks if you are sick, but only for 18 months from the end of the leave year; or where an employer has not informed workers that untaken leave which cannot be carried over will be lost, or has not given the worker a chance to take that leave.
The objective to simplify the regulations has not been met. Worse still there has been a weakening and/or reduction in the levels of labour and social protection that existed at the end of the transition period (post Brexit) on 31 December 2020 contrary to the EU-UK Trade and Cooperation Agreement that imposes 'non-regression' obligations. What is clear is that the fundamental purpose of annual leave to protect the health and safety of workers appears to have been forgotten. Satellite litigation will no doubt ensue.
In the meantime, if this is hurting your head, be grateful you’re still on holidays while you have them and tuck into the leftover mince-pies!
Shantha David, Unison Legal Services
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