An employment law expert has said new government holiday pay regulations designed to simplify calculations for irregular hours workers have ended up making the process ‘massively complicated’.
Employment lawyer, consultant and training provider Darren Newman has pointed out that the draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, which are set to take effect from 1 January 2024 but will apply from annual leave years starting on or after 1 April 2024, are “incoherent and complicated” – particularly around the definition of an “irregular hours worker”, how annual leave is accrued, and which payments are to be included in holiday pay calculations.
In a blog post, he said that the regulations’ description of an irregular hours worker as someone whose paid hours are “wholly or mostly variable” is too vague.
He has raised concerns about the fact that irregular hours workers will no longer be entitled to 5.6 weeks of annual leave; instead, they will accrue annual leave at the end of each pay period at a rate of 12.07% of the hours that they have worked in that period.
This appears to suggest that during the first pay period of their annual leave year they will have no right to any annual leave, should they need it.
He also noted that the regulations refer to an hourly rate of pay in some places, but they do not specify that this is what employers should use to calculate pay for a week’s holiday, for example.
Irregular hours workers’ holiday pay
Irregular hours workers and holiday pay entitlement
Rolled-up holiday pay to be introduced for workers with irregular hours
Another issue is the regulations’ suggestion that pay “intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract” should be included in holiday pay calculations for irregular hours workers by calculating the average weekly amount of those payments over the annual leave period (usually 52 weeks) “and adding it to the amount of a week’s pay”.
Newman told Personnel Today that this appeared to suggest that a worker who receives a performance-related bonus would need to have this included in the calculation for their holiday pay, plus their usual week’s pay.
However, a Department for Business and Trade spokesperson said this interpretation was incorrect.
A Department for Business and Trade spokesperson said: “It’s wrong to say that one-off bonuses will be considered part of normal pay – the regulations are clear this is not the case.
Newman said it appeared that “nobody has sat down with a full copy of the regulations and thought of some scenarios to see how it worked in practice”.
He said: “It will soon be debated in Westminster Hall, [usually] for around half an hour, and nobody will have the time to point out these flaws. And you can’t amend statutory instruments – you either take them or you leave them.
“If [the government] is persuaded that there are problems, they might [enact them] and later revoke and replace them. But they do have to do something by 1 January.”
Amendments are needed by the end of the year because the change in the status of EU law brought about by the Retained EU Law (Revocation and Reform) Act would otherwise leave considerable uncertainty about how the Regulations would work, he explained.
Newman advised employers to continue to ensure that everyone gets 5.6 weeks of leave and that nobody is worse off from a pay perspective as a result of taking time off.
“In reality, for an [irregular hours] employee who wants to take a week off, an employer can say ‘you have X amount of hours, how many do you want to take as paid’ – that’s a perfectly workable way of doing it,” he said.
“The overall policy is, by and large, not to change. But you need to look at what the entitlement of your workers are and how you’ve described the calculation of annual leave in your employment contracts.”
In reality, for an [irregular hours] employee who wants to take a week off, an employer can say ‘you have X amount of hours, how many do you want to take as paid’ – that’s a perfectly workable way of doing it” – Darren Newman
On the accrual issue, Chris Cook, head of the employment and data protection team at SA Law, said: “It will be for employers to decide whether these staff members can book and take more holiday than they have technically accrued under the new rules, and to make it clear that workers risk losing their holiday where it has not been taken. Although it is important for employers to be aware of and properly implement the exceptions to this, including where workers have taken a period of sick leave or a period of statutory leave in any holiday year.”
Commenting on the definition of irregular hours workers, Cook said: “There remains uncertainty for employers as to who is classed as irregular hour workers with it simply defined as ‘workers who have a completely irregular, non-repeating working pattern’.”
Great news for payroll
On the other hand, Samantha O’Sullivan, policy lead at the Chartered Institute of Payroll Professionals (CIPP) felt the new regulations would “ease the administrative burden” on payroll professionals, especially the reintroduction of rolled-up holiday pay.
She said that many employers of irregular hours workers have been paying rolled-up holiday pay anyway, albeit non-compliantly.
“To try and give a zero-hours worker 5.6 weeks’ annual leave entitlement is a nightmare and a huge admin burden,” she said of the current regime.
“Currently, some employers may offer annual leave entitlements that start on an employee’s first day of employment, so it could be that you’ve got 365 members of staff that have all started on different days – at that point you could have 365 different calculations. That’s an admin burden for payroll professionals, especially those with an outsourced payroll provider because they still need to give [the provider] the calculation for each employee’s holiday pay entitlement.”
However, O’Sullivan agreed that the definitions the regulations give for an irregular hours worker or part-year worker were too subjective and “could be skewed to the advantage of an employer in some situations”.
To try and give a zero-hours worker 5.6 weeks’ annual leave entitlement is a nightmare and a huge admin burden.” – Samantha O’Sullivan, CIPP
She said the CIPP has reached out to the Department for Business and Trade to see whether the CIPP can help formulate some guidance for payroll professionals and employers.
The spokesperson for the Department for Business and Trade said: “We will be publishing full guidance on holiday entitlement and pay reforms online in the new year, including examples of calculations and further detail regarding how irregular hours and part-year workers are defined.”
Emma Burroughs, an associate at law firm Collyer Bristow, said the regulations would not be applied retrospectively and that “workers could still potentially bring claims for any non-compliance by the employer prior to the new legislation taking effect”.
She said: “For many employers who have not amended their practices since Brazel, they will revert from being non-compliant to compliant overnight once the changes take effect for them.
“For employers who did amend their practices, they may be in a tricky situation depending on how the amendments were dealt with contractually. They may be in a situation where they will be paying a higher rate of holiday pay for workers than the statutory requirements after the changes come into effect and if they wish to further amend their practices, they are likely to need to consult on the changes and to try to obtain agreement to them.”
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