The Government has published draft regulations to make a number of changes to the Working Time Regulations, including in respect of part-year and irregular hours workers' holiday entitlement. The new Regulations will introduce an accrual method to calculate holiday entitlement for part-year and irregular hours workers, at 12.07% of the hours worked in a pay period.
The Regulations will also introduce legal definitions of 'part-year' and 'irregular hours' workers, and will entitle employers to pay rolled-up holiday pay at the statutory rate of 12.07% for these workers.
These Regulations have been introduced in order to reverse the effect of the Supreme Court judgment in the Brazel case. This means that when the new Regulations take effect, permanently-retained part-year and irregular-hours workers will no longer be entitled to 5.6 weeks' unreduced statutory annual leave. Instead, they will accrue holiday in proportion to their working time. For the first time, the 12.07% calculation rate will be endorsed in law.
The Regulations come into force on 1 January 2024. However, the pro-rata mechanism for part-year and irregular hours workers' holiday entitlement will take effect in respect of leave years beginning on or after 1 April 2024. This means that practically speaking, most schools will be looking to make changes if appropriate, to reflect the new law from 1 September 2024, when the new leave year starts.
The Regulations state that "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".
The Regulations state that "a worker is an irregular hours worker, in relation to a leave year, if the number of paid hours that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable".
Save in respect of periods spent on sick leave or statutory leave, part-year and irregular-hours workers will accrue holiday "on the last day of each pay period at the rate of 12.07% of the number of hours that they have worked during that pay period". Statutory holiday entitlement will be capped at 28 days per year (inclusive of bank holidays).
For salaried part-year workers, holiday pay will continue to be included in salary, so it won't be necessary to change pay calculations, although the holiday entitlement itself will change and this should be reflected in contracts.
For irregular hours workers, their holiday entitlement will be calculated at the rate of 12.07% of their working hours. Once the hours holiday entitlement in hours is confirmed, this will need to be paid at the appropriate hourly rate.
Yes, employers will be able to roll up holiday pay for part-year and irregular hours workers only. Employers who choose to adopt rolled up holiday pay will be able to pay a 12.07% uplift to the worker's hourly rate of pay and will be able to pay this at the time the work is performed rather than at the time the holiday is taken.
The Regulations provide that regular overtime payments paid in the 52 weeks preceding the calculation date must be included when determining the amount of a week's pay for holiday pay calculation purposes.
The regulations represent an attempt by the Government to incorporate the existing body of EU case law into our domestic framework. That body of EU case law said that overtime that is regular, guaranteed or compulsory should be included in holiday pay calculations. However, as this is a new piece of secondary legislation, the question of what counts as "regular" overtime under these regulations has not been settled and could be subject to debate and challenge.
In order to avoid potentially complicated holiday pay calculations for salaried part-year workers one potential option could be to roll up holiday pay for overtime only.
We recommend that all contracts of employment reflect the latest statutory rights. In the case of part-year and irregular hours workers this may mean that a contractual amendment or side is required where contracts have been updated in light of the Brazel judgment. A contractual amendment or side letter may also be required in the event of a move to roll up holiday pay.
Until these changes come into effect, part-year and irregular hours workers remain entitled to an unreduced 5.6 weeks statutory annual leave. If any current employees are not receiving this amount of leave then there is a risk of an unlawful deductions claim.
Once the changes come into effect it will be lawful to pro-rate statutory holiday. Assuming that statutory holiday is paid at the correct rate, there will no longer be a deduction in respect of which to claim in respect of leave years beginning on or after 1 April 2024. However, until the limitation period is reached, staff could still claim in respect of historic underpayments.
Typically, the way to bring a claim in respect of holiday pay arrears would be to bring an unlawful deductions claim under the Employment Rights Act. The limitation period for unlawful deductions claims is capped at a two year rolling period in England and Wales. This means that Tribunals can only look back two years from the date of a complaint when quantifying a claim.
In the Supreme Court case of Chief Constable of the Police Service of Northern Ireland and another v Agnew and others, the police officer claimants were not eligible to bring their claims under the Northern Irish equivalent of the Employment Rights Act. They instead were able to claim under the Northern Irish equivalent of the Working Time Regulations. The two year rolling backstop did not apply to these claimants because it does not apply in Northern Ireland. This meant the claimants were able to recover some thirty years of underpaid holiday.
The judgment has led to questions around whether the two year backstop can be side stepped in England and Wales by claiming under the Working Time Regulations rather than the Employment Rights Act. In our view this is currently unlikely. If a claimant in England and Wales were to apply Agnew in order to bring a claim in respect of a series of deductions under the Working Time Regulations, it is likely that the two year rolling backstop would also be applied to the Working Time Regulations, under the principle of 'equivalence'.
In limited circumstances it is possible the two year claim period could be extended, however in most cases this will be unlikely.
The European Court of Justice, in the case of King v Sash Windows Workshop Limited and another C-214/16 focused on a situation where an individual was deprived from taking leave (and not just underpaid for that leave). The principle from the Sash Windows decision was then applied by the Court of Appeal in the case of Smith v Pimlico Plumbers . That case established that if an employee or worker has been refused the right to take paid annual leave, their annual leave will accrue from year to year and crystallise in full on the termination of their employment. The Court also confirmed that permitting the individual to take unpaid leave in these circumstances would not be enough to prevent the right to paid leave from accruing.
We have also considered whether there is any route to extend the period of arrears by pursuing this as a contractual claim. There is legislation which specifically restricts individuals trying to circumvent the two-year cap by instead presenting a claim in the civil court for breach of contract which has a limitation period of six years from the date of claim. The statutory rights under the Working Time Regulations cannot be implied into contracts to confer a contractual right to paid leave. It is possible however that individuals might try to rely on express contractual wording to pursue a claim for breach of contract which, if successful, would be for a period of six years' arrears from the date of claim.
For further information on holiday pay please contact Alice Reeve on 0117 314 5383 or Simon Bevan on 0117 314 5238. Alternatively, please complete the form below.