Planned changes to holiday entitlement and pay, TUPE and the Working Time Regulations

Last week, the government published its response to two consultations held earlier in the year on (1) calculating holiday and (2) retained EU employment law and proposals to reform TUPE and the Working Time Regulations. New regulations are intended to come into force on 1 January 2024, referred to in this note as the "draft regulations".

The key reforms are summarised below:

• Employees are entitled to 4 weeks leave (under EU law) and a further 1.6 weeks (under UK law). The current position is that workers receive 4 weeks at their 'normal' rate of remuneration and 1.6 weeks' at their basic rate of pay. The government will maintain these two distinct ‘pots’ of annual leave and rates of pay. Paragraph 15F(8)(e) of the draft regulations confirms what elements form part of 'normal' remuneration, which appears to be in line with EU caselaw.
• For irregular hours and part-year workers, holiday will accrue at the rate of 12.07% of hours worked in each pay period for holiday years from 1 April 2024. The rate of 12.07% will be familiar for many, calculated by taking 5.6 weeks statutory holiday divided by 46.6 working weeks of the year. The draft regulations set out what the government means by irregular hour and part-year workers at paragraph 15F(1). The draft regulations also specify how holiday is accrued when these workers have been on family related leave or sick leave.

• Rolled-up holiday pay will be allowed for irregular hours workers and part-year workers, which could include agency workers. Rolled-up holiday pay is a practice where a worker is paid their holiday pay on top of their hourly rate of pay, instead of the worker being paid for their holiday when they take it. Where there are two rates of holiday pay, employers using rolled-up holiday pay must calculate it based on a worker’s total earnings in a pay period.
• The government will reinstate various pieces of retained EU law that permit carry-over of holiday where:

• An employer has failed to recognise the worker's right to paid holiday.
• An employer has failed to give the worker a reasonable opportunity to take holiday or not encouraged them to do so.
• An employer has failed to warn the worker of the risks of losing their holiday entitlement at the end of the holiday year.
• A worker has been unable to take it due to being on family related leave or sick leave.

• During the pandemic, regulations were put in place allowing workers to carry over 4 weeks' EU leave into the following holiday year if it was not reasonably practicable for the worker to take it due to the effects of Covid-19. These regulations will be removed. From 1 January 2024, workers can no longer accrue COVID-19 holiday but will be able to use this accrued holiday up to and including 31 March 2024.  

Currently, TUPE allows employers with fewer than 10 'affected' employees to discharge their obligations by informing and consulting directly with the affected employees, rather than having to inform and consult with appropriate representatives (subject to certain requirements being met). From 1 July 2024, businesses with fewer than 50 employees carrying out a transfer of any size, and businesses of 50 or more employees where the transfer affects less than 10 employees, can inform and consult directly with the affected employees, provided there are no existing appropriate representatives in place.

Employers will no longer have to keep a record of each worker's daily working time. They will still need to keep adequate records to demonstrate compliance with the Working Time Regulations.  

To read the government's response to the consultations in full, click here. A table summarising the government's changes can be found at page 32.

The draft regulations (the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023) are available here. These draft regulations come into force on 1 January 2024.

We recommend that, where appropriate, organisations start preparing for these changes by reviewing existing contracts to determine whether any changes need to be made, plan how it will communicate any changes to staff and put in place any necessary systems or practices to ensure compliance.