Part 1 Working Time Regulations – Is rolled up Holiday Pay now legal?
In 2006, the European Court of Justice ruled that rolled up holiday pay was illegal. It directed all EU countries to implement measures to ensure such practices stopped. The Government drafted guidance for employers that stated rolled up holiday was illegal but never gave any time frames for employers to phase it out. The result being many workers are still paid rolled up holiday pay.
Fast forward to 20 July 2022 and the case of Harper Trust v Brazel, in which the Supreme Court ruled a teacher, working on average 10 hours a week in term time, was entitled to the full 5.6 weeks annual leave entitlement. Many viewed this judgment as enormously unfair given regular part time workers have their holiday pro-rated.
Following Brexit, the Government has implemented a vast amount of legislation to ‘take back control’. One such Act will remove all EU case law and the principles they have established from 1 January 2024. However, the UK wants to continue to adhere to some of those principles, and so legislators have been fast at work creating new regulations, including in respect of working time.
Here we will look at rolled up holiday pay and some other features in the new legislation. Look out for part two of the series, in which we will discuss holiday entitlement carry over.
- New Class of Worker
Before looking at rolled up holiday pay, one must first understand the new class of worker it applies to.
There are two categories under this new class of worker:
a) Irregular hours
This is someone whose number of paid hours worked in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable.
No definition has been given for the pay period, but it is likely to be the payroll period, which will vary from employer to employer. Further, it is not clear if a worker who has a minimum number of contracted hours and works those hours some months but additional hours in busy periods, has variable hours in the ‘pay period’.
b) Part Year
A part year worker is someone who is 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.
When determining if someone is a part year worker, periods of sick leave or statutory leave are ignored.
All other workers will be entitled to holiday entitlement and pay in the normal way.
2. Entitlement to Holiday
The new class of worker will accrue holiday at a rate of 12.07% of hours worked in the pay period. If they work 100 hours, they accrue 12.07 hours of holiday.
3. Rolled up Holiday Pay
Employers can pay this new class of worker rolled up holiday pay. It should be paid at a rate of 12.07% uplift to worker’s remuneration and it must be paid at same time as pay for the work done. That means each pay period, you would pay for hours worked and then add 12.07% for rolled up holiday pay. The pay slip must show the amount that represents rolled up holiday pay.
4. Carry Over for the New Class of Worker
A worker who is off on sick leave or as a result of statutory leave will still accrue holiday entitlement. For the new class of worker, this is calculated at a rate of 12.07% of the average hours worked in the previous 52 weeks. You remove weeks when on sick or statutory leave but include weeks where there have been no hours worked.
The new regulations allow for carry over of both the 4 weeks leave and the 1.6 weeks for bank holidays, unlike other workers, who can only carry over the 4 weeks leave.
There is a phasing in period for this new class of worker; the new provisions will apply from the first leave year beginning after 1 April 2024. That means if your leave year begins on 30 March 2023, you have until 30 March 2024 to implement these changes.
What will happen if you carry on with rolled up holiday pay for workers who are not in the new class?
That is not clear. Whilst rolled up holiday pay is currently illegal, it has not been tested in the courts. There was a grace period in which employers who had clear and transparent rolled up holiday provisions, could rely on past payments to extinguish any claim. Given that the Government has not implemented legal provisions on holiday pay, could that mean non-compliance could result in past payments being discounted and employers ending up with a large bill for holiday pay?
EU case law stated that employers had to keep records to ensure they could show compliance with working time and rest breaks.
The new regulations look to loosen that burden. Employers need only have ‘adequate records’ to show compliance, and that does not need to be daily records if an employer can show compliance without them.
If you would like advice on rolled up holiday pay and how these provisions will affect your work force, please call the team on 0207 388 1658 or email email@example.com.
Laura Pearce, Senior Solicitor
Please note that the information contained in this article was correct at the time of writing. There may have been updates to the law since the article was written which may affect the information and advice given therein.