The government will introduce rolled-up holiday pay for workers with irregular hours or part-year contracts.
In its response to the retained EU employment law consultation which ran earlier this year, the Department for Business and Trade said it would press on with plans to allow employers of atypical workers to pay them an additional sum in respect of holiday pay each month, regardless of whether any holiday was taken during that period. This is known as rolled-up holiday pay.
However, it has decided it will not go ahead with plans to introduce a 52-week holiday entitlement reference period for workers with irregular hours.
The government wants to simplify elements of holiday pay under plans to dispense of many EU-derived laws.
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Rolled-up holiday pay is currently unlawful, following a ruling by the European Court of Justice in 2006 which expressed concerns that workers may not be incentivised to take leave as they could earn more holiday pay by staying at work.
The government had initially proposed to introduce rolled-up holiday pay as an option for all workers, but has decided to limit its introduction to those with irregular hours and part-year workers as it said it would offer little benefit to employees with regular hours.
The consultation response said: “Allowing holiday pay to be paid as an enhancement to a worker’s pay at the time that the worker performed work, instead of when they are on holiday, would ensure that the worker’s holiday pay was as closely aligned to the pay that they would have received as possible.
“The government notes the concern that allowing rolled-up holiday pay may disincentivise workers from taking leave. We consider, however, that existing safeguards are proportionate in addressing these concerns. For example, employers are already required to provide an opportunity for workers to take leave… We also have safeguards in relation to the 48-hour working week, where a worker cannot work more than 48 hours a week on average, (normally averaged over 17 weeks) unless they choose to opt out.”
Its decision could be viewed as controversial, as only 4% of employers agreed rolled-up holiday pay should be introduced as an option for all workers. Only 6% of workers who responded to the consultation supported the proposal, while 33% disagreed.
However, the consultation asked for views on introducing it for all workers, whereas the government has now decided that it will only pursue it as an option for those with atypical hours.
Temporary workers could see their annual pay boosted by thousands of pounds, suggested Julia Kermode, CEO of umbrella company compliance firm PayePass.
“All too often, these workers don’t claim holiday – partly due to the fact that they don’t know they’re entitled to it and partly due to the holiday pay being unfairly withheld from them. It’s no exaggeration to say that hundreds of millions of pounds of holiday pay have been left unclaimed over the years,” she said.
“But now there are no excuses for temps to receive what’s lawfully theirs. Rolled-up holiday pay will help hundreds of thousands of workers pay their bills at a very difficult time. It goes without saying that the move to make this lawful will also stop those dodgy businesses from deliberately withholding it from their workers.”
Nearly a quarter of employers said their existing payroll system would not be able to calculate rolled-up holiday pay and a 52-week holiday pay reference period, and a further 55% said they did not know whether their payroll system could do this.
TUPE changes
The government said it would not go ahead with plans to bring in a 52-week reference period for holiday pay calculations. Instead, it will legislate to introduce an accrual method to calculate entitlement at 12.07% of hours worked in a pay period for irregular-hours workers and part-year workers in the first year of employment and beyond.
It does not plan to pursue a single annual leave entitlement of 5.6 weeks with a single rate of pay, and will continue to maintain the two distinct pots of annual leave and the two existing rates of holiday pay. As the Working Time Regulations do not set out what is considered normal remuneration as established by European case law, the government said it would need to legislate to define this in order to retain the two rates of pay.
It plans to introduce legislation that will require the following types of payment to be included when calculating the normal rate of pay:
- payments, including commission payments, that are 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 52 weeks preceding the calculation.
Other proposals the consultation response confirmed would be going ahead include:
- reforming TUPE consultation requirements so that organisations with fewer than 50 employees and any size of business transferring fewer than 10 employees can consult directly with workers if there are no existing worker representatives in place
- removing the effects of a 2019 European Court of Justice judgment that required employers to have a system in place to measure the daily working time of all workers. However, employers will still need to keep adequate records to demonstrate compliance with Working Time Regulations.
No timeline for the changes has been mentioned.
REC chief executive Neil Carberry said: “We strongly support today’s announcement because it recognises that our labour market relies on people who choose to work in different ways. Making sure employers can easily comply with the law and workers get their holiday pay is important – and today’s changes deliver that.
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“The REC argued for more clarity for employers in how they calculate accrued holiday pay and so plans to set a method in stone via legislation in the new year will help. There are more than four million workers who have a completely irregular, non-repeating working pattern and that needs to be recognised by enacting further reform of the Working Time Regulations so they better reflect modern ways of working. The law must enable different forms of contracts, not hammer them into one form.”
