UK Government Publishes Regulations on Holiday Pay Reform

​Following the U.K. government's announcement in May that it intended to reform holiday pay, the government has published draft regulations that will take effect Jan. 1, 2024. The significance of that date is that EU laws will be revoked, unless expressly saved, by virtue of the Retained EU Law (Revocation and Reform) Act 2023. The proposed regulations attempt in part to preserve the effect of EU case law on holiday, or in some instances, to depart from it.

In broad terms, the regulations will have the following effect.

The recordkeeping obligations contained in the Working Time Regulations are amended to make clear that employers have discretion as to how they satisfy their recordkeeping obligations. There is a new, express provision that states there is no obligation to keep daily records of work time if compliance can be demonstrated in other ways.

Rules on carry-over of holiday, as case law has developed, are now enshrined in these regulations so that:

• Workers will be entitled to carry over untaken holiday into the next leave year—or beyond if their rights continue to be denied—where their paid holiday rights have been denied due to either: their misclassification as self-employed; them not being given a reasonable opportunity to take the leave; or their not being told of a "use it lose it" rule. This firmly puts the onus on employers to recognize which workers are entitled to holiday, to ensure that workers are informed each year that leave should be taken and to practically enable them to take it.
• Those on sick leave or other statutory leave will be entitled to carry-over holiday provided it is taken within 18 months of the end of the leave year from which it originally derives.

Rules on rolled-up holiday pay will change so that, contrary to the position laid down in the European Court of Justice case of Robinson-Steele, part-year workers and irregular hours workers will be able to receive holiday pay within their hourly rate of pay at the rate of 12.07 percent of hours worked over a 52-week reference period (or weeks worked to date if less than 52). The regulations provide for how to calculate holiday pay for those with irregular hours, including when a rolled-up approach is not adopted.

What is included in holiday pay? The 4 weeks' leave derived from the Working Time Directive (Regulation 13 leave) will be paid at the rate of "normal pay" (which connotes more than basic pay), but the additional 1.6 weeks' leave (Regulation 13A leave) will be paid at the rate of basic salary. This departs from the stated position in Agnew, that leave should be treated as a "composite pot." It also goes contrary to the initial announcement in May. The government will legislate further to clarify what is included in "normal" pay.

Comment

Employers should review their employment contracts, holiday policies and payroll arrangements before these regulations take effect to ensure they comply with the new rules. It is more important than ever for employers to inform workers that they will lose holiday if they do not take it in the relevant leave year and to practically enable them to take holiday.

It is surprising that the government has chosen not to treat the four weeks plus 1.6 weeks' statutory holiday as one composite pot. When contractual provisions depart from the distinction now envisaged between Regulation 13 leave (4 weeks) and the Regulation 13A leave (1.6 weeks'), employers should seek advice on the implications. Falling in line with the statutory regime could put employers in breach of contract and any proposed changes need to be handled with care.

Those using atypical workers will need to decide how to proceed, again handling any proposed changes with care. Rolled-up holiday pay may seem like an attractive solution, but not all workers will want to accept a rolled-up holiday pay arrangement. Employers will need to show their workings in itemized pay statements.

Shireen Shaikh is an attorney with Taylor Wessing in London. © 2023 Taylor Wessing. All rights reserved. Reposted with permission of Lexology.