Following the Supreme Court ruling in Harpur v Bazel in 2022, the government issued a consultation into the matter at the start of 2023, with the results of the consultation released in November 2023. This was also accompanied by a consultation conducted on the record keeping requirements under the Working Time Regulations, simplifying annual leave and holiday pay calculations in the Working Time Regulations and requirements under the TUPE Regulations.

As you may remember, Harpur v Bazel concerned the method by which employers should be calculating holiday pay for part year workers (for example, term-time only workers). The Supreme Court suggested that a calculation of weekly pay for a part-year worker is that which is laid down by s.224 Employment Rights Act 1996, where the weekly pay amount is calculated by taking the previous 12 weeks of earnings (ignoring any at zero).

As a result, a disparity in entitlement to holiday arose in relation to part-year and part-time workers, whereby “part-year workers are now entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year”.

The Government was keen to address this disparity to ensure that holiday pay and entitlement received by workers is proportionate to the time they spend working. In short, the proposed regulations are The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (the Regulations) which also address the retained EU law consultation into Working Time Regulations and TUPE.

The new regulations will:

• reduce time-consuming reporting requirements under the Working Time Regulations
• simplify annual leave and holiday pay calculations
• streamline the regulations that apply when a business transfers to a new owner.

This means that from 1 April 2024, the 12.07% method is back for workers that have irregular hours, or who work part of the year. Leaving aside sick leave or other leave such as maternity leave, the accrual calculation should be carried out on the last day of a pay period referencing the hours worked that pay period. Holiday will accrue that can be taken, capped at 28 days.

Holiday entitlement for this type of worker is recommended to be assessed and counted in hours.

The regulations also make provision for legalising ‘rolled-up holiday’ pay and how this should be applied in practice. Again this relates to workers with irregular or part-year workers only; it is important that employers consider the definitions and ensure that workers are in the correct categories of calculations.

Other workers continue to be entitled to the current 5.6 weeks leave. There was some consideration of the two different types of leave (the four weeks of EU derived entitlement, and the 1.6 UK law addition) as they are calculated differently, but there is no current plan to create a single pot of leave, so both remain for the time being.

For clarity though, the new regulations enshrine the EU law back into UK legislation, and the following should be included in the four weeks of EU leave for ‘normal remuneration’:

(a) payments, including commission payments, which are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract;

(b) payments for professional or personal status relating to length of service, seniority or professional qualifications; and

(c) other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation.

Most employers apply this to all 5.6 weeks but where employers calculate separately then it should be ensured that all contracts specify what leave should be taken first so that correct pay is applied. 

More reforms for rates of pay are expected in 2024.