Are holiday pay changes on the way

As part of the government proposals following BREXIT, the ‘Smarter Regulation to Grow the Economy’ published on Wednesday 10th May 2023 outlines adjustment to the Working Time Regulations.

The Working Time Regulations, which are derived from retained EU legislation, provide a number of valuable worker protections.

However, some of these regulations are viewed as placing disproportionate burdens on business, and will be consulting on proposals to improve how these regulations work ‘without affecting the rights that really matter to workers’.

The proposals include reducing the administrative burden and complexity of calculating holiday pay.

Court of Justice of the European Union (CJEU) – C-131/04 – Robinson-Steele v RD Retail Services Ltd (2006)

Back in 2006, the Court (CJEU) ruled that rolled-up holiday pay schemes are contrary to the Working Time Directive, because they could deter workers from taking their holidays. Therefore such schemes are unlawful. However, the Court went on to say that if it was transparent and comprehensible that the sums in question were in respect of annual leave then those sums could be set off against the employer’s holiday pay liability.

Despite the ruling, forms of rolled up holiday pay are often seen especially in certain industry types.

Rolled up holiday proposal – what of the future?

As part of BREXI measures, The government propose to introduce rolled-up holiday pay, so that workers can receive their holiday pay with every payslip.

How this will operate and what measures of protection are put in place are not yet known.

EU and U.K. holiday entitlements

Under the current Working Time Regulations (WTR), there are presently two entitlements in the UK:

  • Regulation 13 provides a right to 4 paid weeks holiday under EU law. Using a max of 5 day week this equates to 20 days leave.
  • Regulation 13a is specific to the UK and provides a right to a further 1.6 paid weeks leave (based on 5 days in a week this equates to 8 days). This can be used to cover any paid bank holidays.

The government propose to merge the current two separate leave entitlements into one pot of statutory annual leave, while maintaining the same amount of statutory leave entitlement overall.

What about other holiday pay changes?

With little detail known at this time, merging the two entitlements into one May have other implications. Some employers only apply other EU rulings in relation to the inclusion of other pay elements which formal part of an employees normal or regular pay such as commission and overtime etc.

So what will happen with the other EU rulings that currently apply.

What about percentage schemes?

Percentage based schemes such as those using 12.07% were ruled as never lawful by the Supreme Court in 2022 following a prior judgement from 2019 with the Court of Appeal.

Although these schemes remain in regular use by some industries, they are presently unlawful. Whether percentage based schemes become part of rolled up holiday pay we will have to see.

Is it broke so needs fixing?

Many will say yes although there are two sides to the coin. Prior research has shown that around 1.8 million are denied their holiday rights and being underpaid.

Holiday pay law covered by WTR and the Employment Rights Act are overly complex. Although the majority of employees are not weekly paid, the current law is ignorant to other pay frequencies which are not weekly. Also the concept of earnings and pay with regards to timing are confused with holiday averaging requiring inclusion of amounts that haven’t been paid yet. How does an employer average pay up-to the prior Saturday? Even weeklies will struggle as many are paid in arrears.

But will proposed change makes things better or worse?

PAYadvice.UK 10/5/2023

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