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New changes to holiday accrual and pay, record keeping and TUPE consultations in force from 1 January 2024

The government has published its response to the consultation on calculating holiday entitlement for part-year and irregular hours workers and a separate consultation on reforming retained EU employment law. It has also published The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (new regulations) which will bring these changes into law, in most cases, from Monday 1 January 2024. 

We will be publishing detailed guidance on the new regulations next week, but for now, here are the headlines:

Employers will be able to roll up holiday pay - but only for some categories of workers

Employers with holiday years from 1 April 2024 will be able to roll up holiday pay for irregular hours or part-year workers (which it defines) as long as:  

  • their holiday pay is calculated at 12.07% of their pay and is paid at the same time as their ordinary pay; and
  • the amount of holiday pay is itemised separately on their payslips

Normal pay will be defined to include overtime, commission and other payments

The Government has decided not to create a single pot of 5.6 weeks’ annual leave. Instead, it will maintain the two pots of four weeks’ EU- derived annual leave (Regulation 13) and 1.6 weeks’ domestic leave (Regulation 13A). Employers must continue to pay EU-derived leave at a worker’s normal rate of pay, but can reduce it to basic pay for the remaining domestic leave.  

The new regulations codify the existing caselaw and amend the law to make it clear that the following payments must be included in the four weeks of leave set out under S13 as follows:

  • payments, including commission payments, which are intrinsically linked to the performance of tasks which the worker is obliged to carry out under the terms of their contract
  • payments for professional or personal status relating to length of service, seniority or professional qualifications
  • other payments, such as overtime payments, which have been regularly paid to the worker in the last 52 weeks  

New accrual system for part-year and casual staff accrue leave to reflect the number of hours worked

The new regulations will introduce an accrual method for irregular and part-year workers. 

For holiday years from 1 April 2024, a worker's holiday entitlement will be calculated at 12.07% of hours worked in a pay period (how often they are paid) and will apply in the first year of employment and beyond. This will override the Supreme Court's decision in Brazel v Harpur Trust which decided that part-year workers engaged under permanent or continuous contracts must receive at least 5.6 weeks paid holiday a year, even if they only worked for part of that year.

Other workers will continue to accrue annual leave in their first year of employment as they do now by receiving 1/12th of the statutory entitlement on the first day of each month and to pro-rate it thereafter. 

Clarity over when workers can carry over holiday from one leave year to the next 

The new regulations also, for the first time, set out when a worker can carry over leave from one year to another and reflect decisions of the ECJ and other UK courts.

Workers can carry over leave if they:

  • have not been able to take it because their employer doesn't accept they have the right to paid leave (because, for example, they have been wrongly treated as self-employed)
  • have not had a reasonable opportunity to take it
  • aren't told by their employer that if they don't take leave by the end of the leave year, they will lose it
  • are too ill to take it
  • are unable to take it because they are on different type of leave such as maternity, shared parental leave or adoption leave

The regulations set out how much leave can be carried over and whether it can be rolled over into subsequent leave years.

Changes to record keeping

The new regulations require employers to keep ‘adequate’ records to demonstrate they have complied with the WTR's in respect of the maximum working week, working time for young workers, night work, health assessments and the transfer of night work to day work.

TUPE consultations

Businesses with fewer than 50 employees, and businesses of any size carrying out a small TUPE transfer of fewer than 10 employees, will be able to inform and consult directly with affected employees where there are no existing worker representatives in place.

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