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Important changes to the law relating to holiday pay

Posted: 13/11/2023

While last week’s King’s Speech was relatively light on employment law, the remainder of the week saw some significant developments for employers and those advising them.

Earlier this year, the government confirmed that it was reviewing certain aspects of retained EU law, in particular changes to the Working Time Regulations (WTR) and the calculation of holiday pay. The government has now reiterated these plans and, in addition, has finally established how it intends to deal with the thorny question of the calculation of holiday pay for part-year and irregular hours workers, following the consultation launched earlier this year in response to the Supreme Court’s decision in Harpur Trust v Brazel.

Amending legislation has been laid down in draft and is expected to come into force on 1 January 2024. However, the provisions in relation to the accrual and payment of holiday for part-year and irregular workers relate to leave years beginning on or after 1 April 2024, so the effects could take time to filter through for some workers and employers.

WTR changes

Having taken on board responses to the consultation, the government has announced a change in the law for part-year and irregular hours workers only to allow accrual of holiday at the rate of 12.07% of normal pay, based on hours worked in the relevant pay period. This was felt by the respondents to the consultation to be a tried and tested method that has been used for a long period without difficulty. The 52-week reference period that was proposed in the consultation document will not be adopted.

Part-year and irregular hours workers will no longer be entitled to holiday under regulations 13 and 13A of the WTR, but will instead be granted holiday entitlement under a new regulation 15B, providing for accrual at the 12.07% rate, with the method for calculating payment set out in regulation 16. A significant change from the usual regulation 13/13A method of establishing a worker’s entitlement to holiday is that it will be calculated in hours, rather than in weeks.

The new provisions also introduce a legal right to pay rolled-up holiday pay. Many employers will welcome this change, as those who employ irregular hours workers will often routinely make a payment of ‘holiday pay’ alongside basic pay as an alternative to calculating and offering annual leave. Now, however, employers will no longer need to use this practice furtively, hoping that they have been transparent enough in their calculations to avoid liability! This will be allowed only for part-year workers or those with irregular working hours – although in practice these are the types of workers for whom these arrangements are currently in place.

The amending legislation introduces a new regulation 15F into the WTR which contains the following definitions:

  • A worker is an irregular hours worker, in relation to a leave year, if, under the terms of their contract, the number of paid hours that they will work in each pay period during the term of their contract in that year is wholly or mostly variable.
  • A worker is a part-year worker, in relation to a leave year, if, under the terms of their contract, they are required to work only part of that year and there are periods within that year (during the term of the contract) of at least a week which they are not required to work and for which they are not paid. Periods of sick leave or statutory leave (such as maternity leave) are ignored.

Agency workers will be subject to the same criteria, and therefore may or may not fall within the definitions of part-year or irregular hours workers, depending on the nature of their contract.

In addition, the government has also confirmed that it will not combine the two types of leave entitlement (the so-called 20 days’ ‘Euro leave’ under regulation 13 of the WTR and the additional eight days granted in the UK under regulation 13A) into one ‘pot’, but will continue to keep them separate.

EU and domestic case law has determined that holiday pay should be equivalent to a worker’s ‘normal remuneration’, but these decisions only apply to Euro leave, which means that employers may at the moment, if they wish, pay holiday pay for the 20 days’ Euro leave at a rate which includes commission, bonuses and some types of overtime, but the remaining UK leave at basic pay only. The government will, however, insert a new provision into the WTR to confirm that the following must now be included when calculating a week’s pay:

(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;

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

This reflects the decisions of the Employment Appeal Tribunal in the Bear Scotland case and the Court of Appeal in the Lock case.

Further amendments to the WTR include:

Employers will no longer be required to keep records of workers’ daily working hours, as long as they are able to demonstrate compliance with the WTR without doing so. There will still be no explicit obligation on employers to keep records to show compliance with daily or weekly rest periods or rest breaks.

The right to carry over leave that could not be taken because of the effects of coronavirus will now be removed, although workers will be able to use up such leave until 31 March 2024.

Restating of EU rights that would otherwise be ‘sunsetted’ by the Retained EU (Revocation and Reform) Act 2023 relating to the carry over of annual leave under the WTR in various different circumstances, and defining normal pay under regulation 13.


The amending legislation also introduces an amendment to TUPE, to the effect that businesses with fewer than 50 employees, and businesses of any size carrying out a small TUPE transfer of fewer than 10 employees, will not need to inform and consult with employee representatives, but can inform and consult directly with affected employees where there are no existing worker representatives in place.

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