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More changes afoot after holiday pay consultation

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Responses to the retained EU employment law reforms consultation document mean changes will soon be on the way. Ian Holloway looks at what this means for the re-introduction of rolled-up holiday pay and the reform of TUPE.

22nd Nov 2023
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The UK government’s new approach statement in May put an end to the 31 December 2023 cliff-edge freefall of all European Union-derived (EU-derived) employment and case law. Instead, only specific pieces of EU-derived legislation would cease to exist from 1 January 2024. 

Yet, a consultation issued around the same time (retained EU employment law reforms) looked at four changes:

  1. the requirement to record working time
  2. the calculation of holiday leave and pay
  3. the re-introduction of rolled-up holiday pay
  4. reform of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), which would be UK-wide.

Last time we looked at the first two changes, so now it’s time to address 3 and 4.

3. Rolled-up holiday pay

It was the 2006 ECJ ruling in Robinson-Steele vs RD Retail Services Ltd that outlawed the rolling up holiday pay (RHP). This is paying the worker holiday pay at the time they earn rather than paying at the time they take leave. The judges in the 2006 case ruled that paying at a time other than taking leave was contrary to the original EU Working Time Directive.

Now the UK is not bound by EU rules, the consultation proposed bringing back the 12.07% calculation rule (5.6 weeks statutory leave divided by 46.4 working weeks for a full-time worker). It asked two questions.

  1. Are you in favour of bringing it back?
  2. Could payroll systems handle this as well as the 52-week look-back calculation?

Page 23 of the responses document is interesting to read as it acknowledges that the majority of respondents were not in favour of a 12.07% return. The UK government acknowledged that there were concerns about it being complicated and costly using payroll systems and said they were aware it was already used in a lot of sectors. This probably shows how well the holiday leave and pay system is policed by the UK government if it’s been unlawful since 2006!

Quite obviously, the UK government was determined to bring RHP back as an option and the responses document and the draft legislation explain this.

For employers and workers

The 12.07% calculation is back for leave years starting on and after 1 April 2024 (subject to Parliamentary approval of course). It will work as follows.

  • Only for workers with irregular hours or who are part-year workers (definitions to be inserted into the Working Time Regulations but relatively simple to work out yourself!)
  • It’s an employer option and the worker cannot request it.
  • Simply, 12.07% of the workers’ pay in the pay reference period is paid as RHP at the time they get paid, shown as a separate item on the payslip. If this happens, they are “discharged” of their liability to make payment at the time leave is taken.
  • The 12.07% calculation applies during periods of sickness and other statutory leave (SSP, SMP and so on).

So, the fact there are different types of leave and different pay calculations is ignored if the employer chooses to operate RHP. The calculation is based on pay in the pay period.

There will be many employers and payroll providers that will welcome the legal return of RHP. And there’s me that has been advising for years it should not be done while the Department for Business and Trade (and their predecessors) have been aware of its continued use in some sectors.

Like the UK government, I still have concerns as to whether RHP will disincentivise a worker taking their leave. After all, if you have been paid up front for your leave (with your pay), your leave is unpaid, unless you save the money away. Unlike the UK government, I do not think that there are “existing safeguards” to address this concern. Indeed, I’m not sure what these safeguards are.

It does very much seem as though the concept of the EU Working Time Directive is lost – we may have left the EU but is it right to have lost this concept? 

4. Transfer of Undertakings (Protection of Employment)

The consultation sought views on the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE), specifically impacting small businesses (fewer than 50 employees). Where there is a business transfer, the TUPE regulations allow microbusinesses (fewer than 10 employees) to consult directly with employees rather than employee representatives, for example, trade unions. The proposal was to extend the requirement not to consult to small businesses. So, both small and microbusinesses would be able to consult directly with employees.

The consultation responses (questions 17 to 19) overwhelmingly showed there was not support for this proposal. The document stated that this was “due to concerns about the proposals undermining workers’ rights or shifting the balance of power in TUPE transfers towards employers and away from employees”. 

However, the UK government highlighted the few trade bodies and small employers who responded that did agree to the proposals. It is little surprise, therefore, the UK government will proceed with its proposals – the power of manipulating numbers and percentages to suit what you wanted anyway.

For employers

For small employers that do not have an elected representative, from 1 January 2024, when there is a TUPE transfer, The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (in draft at the moment) will amend the UK-wide Transfer of Undertakings (Protection of Employment) Regulations 2006.

Small and micro employers will be able to consult directly with employees where there are less than 10 transfers intended. As the UK government’s response says: “Employers are more likely to have a more personal relationship with their employees, which may make consulting them directly – rather than electing new worker representatives – easier and quicker.”

Despite the regulations that allow consultation directly with employees (for small and micro employers where there is no employee representative), there is nothing to say that employers must do this.

Fit for purpose

Such fundamental reforms to the Working Time Regulations may give simplicity and may achieve the objective of ensuring they are fit for purpose. It does have to be highlighted that, aside from TUPE, these only apply in Great Britain. For the Department for Business and Trade to use the word “UK” repeatedly does leave out one of four countries that comprise our United Kingdom.

With everything in life, these reforms are all about education and communication. 

Plus, let’s not forget payroll software developer professionals who are the ones who will make these changes work for us.

Replies (2)

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By PChapman
23rd Nov 2023 15:27

The Current holiday pay legislation is hideously complex and few people properly understand it! Least of all the workers it aims to protect!

We need to go back to a simpler system. the % of pay was simple, equitable, and everyone understood how it worked.

The average should be based on average of worked hours, and accrued for

I do not agree with re-introducing the rollup.
It hides the holiday pay in the hourly rate. often causing people to be paid less than they think they're being paid and to not take holiday as it is, in effect, unpaid leave!
Many people live hand to mouth, and struggle with debt over Christmas, despite the date being known years in advance!
People have shown that they are unable to plan for a pension - hence the AE legislation (Pre AE. In the case of one place I've worked the pension was at no cost to the employee - they just had to opt in yet the take up was extrodinarily low! )
So how the government expects workers to "hold back" for holiday pay is, at best, nieve

Thanks (2)
By coops456
27th Nov 2023 07:54

Agree that rolled-up holiday pay is misleading and doesn't encourage staff to take actual breaks from work. Nor should it be tied to or conflated with using 12.07% to calculate holiday pay entitlement.

I welcome the return of 12.07%; many staff in e.g. hospitality and leisure are on zero hours contracts working variable hours and 12.07% is the simplest and fairest way of calculating their holiday pay. This holiday pay isn't rolled-up but accrues into a holiday fund that the worker draws down on. Best of both worlds.

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