The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023
On 1 January 2024, the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 came into force. While many were expecting the Regulations to go further based on previous Government proposals, the Regulations still represent some of the biggest changes to UK employment law in some time. The Regulations form part of the review into the operation of UK employment law post-Brexit and address three main topics: holiday pay and entitlement under the Working Time Regulations 1998 (‘WTR’), requirements for consultation under the Transfer of Undertakings (Protections of Employment) Regulations 2006 (‘TUPE’) and record keeping under the WTR.
Irregular hour workers and part-year workers
Firstly, two important changes in relation to ‘irregular hour workers’ and ‘part-year workers' have been introduced. The Regulations amend the WTR to define ‘irregular hour workers’ and ‘part year workers’ in the following terms:
- A worker is an irregular hour worker in relation to a leave year, if, under the terms of their contract, the number of paid hours that they will work in each pay period during the term of their contract in that year is wholly or mostly variable.
- A worker is a part-year worker in relation to a leave year, if, under the terms of their contract, they are required to work only part of that year and there are periods within that year of at least a week which they are not required to work and for which they are not paid. Periods of sick leave or statutory leave (such as maternity leave) are ignored.
- Agency workers will be subject to the same criteria, so whether they qualify as a part-year or irregular hours worker will depend on their contract.
Recently, the government released new guidance on the Regulations, specifically in relation to the changes to the WTR. This guidance can be accessed here. It provides useful worked examples of how to determine which of the above definitions applies to a worker.
Under the WTR, all workers are entitled to 5.6 weeks’ annual leave in each holiday year. This is made up of 4 weeks’ holiday under regulation 13 of the WTR and a further 1.6 weeks’ holiday under regulation 13A of the WTR. Calculating how many days’ leave are equivalent to 5.6 weeks can be complicated for those who work irregular hours and/or only part of the holiday year.
This came to the fore last year, when the Supreme Court ruled in the case of Harpur Trust v Brazel that, under the WTR, holiday entitlement for part-year workers who are employed for the whole holiday year (e.g., those who only work during term time) should not be pro-rated and, regardless of the hours worked, part-year workers should receive 5.6 weeks’ holiday in each holiday year. Instead, their holiday pay should be calculated with reference to their average pay over the 52-weeks immediately preceding their holiday (see our previous blog here). Prior to this case, it was common practice for employers to calculate holiday entitlement for part-year workers, casual workers, agency workers and other irregular workers at 12.07% of the hours worked. This case held that practice to be unlawful and resulted in some unintended outcomes, whereby those working only part of the year could be entitled to as many holidays as someone working for the entirety of the year.
To resolve this and provide much needed clarity, the Regulations provide that ‘part-year’ and ‘irregular hour’ workers will accrue holiday at the rate of 12.07% of the number of hours worked in each pay period, capped at 28 days (the equivalent of 5.6 weeks for an individual who works 5 days per week. This will only apply to leave years beginning on or after 1 April 2024.
An average over a 52-week reference period will still be needed to calculate holiday accrual for workers who are on sick leave or statutory leave (such as maternity leave).
Rolled up holiday pay, where an element of a worker’s rate of pay is attributable to their holiday pay (rather than being paid for holidays separately), has been unlawful since 2006 following a ruling by the European Court of Justice that rolled up holiday pay could deter workers from actually taking their holiday. The Regulations reverse this judgement and allow rolled up holiday, although only in relation to irregular and part-year workers.
Rolled up holiday pay has generally been discouraged as one that deters workers from taking holiday, as they are not being paid directly for it. In reality, it is still a common practice for casual or zero hour contract workers and so this amendment will in many cases simply regularise a practice that is already taking place. The Regulations require that rolled-up holiday pay must be at least 12.07% of pay. For simplicity's sake, the rolled-up holiday pay rules will not mirror the distinction between the two rates of holiday pay for regulation 13 and 13A leave and must be "based on a worker's total earnings in a pay period". The Regulations also specify that pay slips must clearly set out how much holiday pay has been paid in respect of the relevant period.
The Regulations also clarify what is to be included in holiday pay, i.e. what is ‘normal renumeration’ for the purposes of regulation 13 leave. It will now include anything already included in the existing statutory definition of a ‘week's pay’, plus:
- Payments, including commission, intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out.
- Payments for professional or personal status relating to length of service, seniority or professional qualifications.
- Payments, such as overtime payments, which have been regularly paid to a worker in the previous 52 weeks.
Lastly, the Covid Regulations which relaxed the rules on carrying over holiday ceased to have effect from 1 January 2024, and so employees and workers must ensure that any holiday carried over under these rules is used by 31 March 2024.
Holiday carry over
The Regulations also enshrine various laws that were derived from EU case law, confirming that they will still apply post-Brexit. For example, the right to carry over holiday still applies in the following situations:
- Where holiday was not taken due to sick leave or other statutory leave;
- Where the employer has failed to recognise a right to a holiday, or has failed to give an employee reasonable opportunity or encouragement to use holiday;
- Where the employer fails to inform the worker that holiday not taken will be lost at the end of the leave year.
This will therefore not lead to any changes to the existing law or current practices.
Conversely, the Regulations confirm that certain rules inherited from EU jurisprudence will not be carried into UK legislation. Previously, EU case law established that employers have to keep records of working hours and rest periods for nearly all members of the workforce, regardless of whether they work irregular hours or not. This requirement has been removed by the Regulations, provided that the employer is able to demonstrate compliance with the Working Time Regulations without such records.
The Regulations also amend certain rules relating to TUPE transfers and consultations, although these changes will only apply to transfers that take place on or after 1 July 2024. From that date, businesses with fewer than 50 employees undergoing a TUPE transfer will be able to consult directly with employees if there are no representatives in place already. Similarly, businesses of any size undertaking a transfer that will impact fewer than 10 employees will be able to consult directly with employees if there are no representatives in place already. Therefore, employers will no longer need to arrange for effected employees to elect new employee representatives if they are not already in place, if the transfer will impact fewer than 10 employees. Where representatives are already in place, they will still need to be consulted.
Many of the changes brought in by the Regulations will be welcomed by employers as clarifying the position on holiday entitlement and pay for irregular workers. Other parts of the Regulations simply confirm that certain EU derived rules will be carried into domestic law, requiring no action from employers.
Should you have any questions about the changes, or any other area of employment law, please contact our Employment Law team on 03330 430 350.