Government Proposes to Simplify Holiday Pay Calculation Post Brexit

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Photo Credits: Gary Butterfield via Unsplash

In a recent announcement, the UK government revealed its plans to streamline holiday pay and entitlement under UK law. These proposed changes, outlined in the Retained EU Law (Revocation and Reform) Bill and the government’s Retained EU employment law reforms consultation, are set to have a significant impact on the current legal framework surrounding holidays.

Legislation around holiday pay, particularly for people who work irregular hours or are on zero-hour contracts, has become quite complex. Moreover, decisions made by the European Court of Justice regarding the calculation of holiday pay have only made these laws more complicated. This is why the proposal is a welcome change by the Government as it will simplify and clarify any issues regarding holiday entitlement.

First Proposal – 5.6 Weeks Single Leave Entitlement

Existing Issue

At present, almost all workers have a 5.6-week paid leave entitlement each year. However, this leave has two parts as set out in the Working Time Regulations 1998 (WTR):

  1. Minimum 4 weeks’ annual leave per year according to regulation 13(1) of WTR
  2. Additional 1.6 weeks’ annual leave according to regulation 13A of WTR

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While it may seem simple, there are a few points to consider. Firstly, leave assigned under regulation 13(1) includes commissions, bonuses, overtime etc., but the leave under regulation 13A does not. Secondly, the 4 weeks leave under 13(1) cannot be carried over unless prevented by maternity, or any other such leave, while 1.6 weeks under 13A can be carried over (subject to agreement between employer and employee).

Another problem with this existing legislation is that there is no guidance on which of these leaves should be used first. This alone is enough to cause enough confusion which then creates disputes between employers and employees regarding carrying over leaves and holiday pay.

What the Proposal Says

Under the proposed system, the two leave entitlements would be combined into a single entitlement of 5.6 weeks. This change does not increase the leave entitlement for employees but would create a much simpler and unified system for calculating holiday pay and determining rules for carry-over.

While the consultation document does not provide details on the proposed calculation method for holiday pay, it is expected that this aspect will also be simplified. Additionally, the government is seeking input from employers and workers on how holiday pay is currently calculated and how they believe it should be defined in legislation.

Second Proposal – Rolled Up Holiday Pay

The second proposal that is aimed at changing the way holiday pay is calculated involves introducing “rolled up” holiday pay.  This means employers will be able to roll up holiday pay into the wages of anyone who works irregular hours. Plus, this will allow every worker to receive regular payslips with holiday pay.

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The reason this is a big change is that EU case laws do not allow rolled-up holiday pay for casual workers or any worker with irregular hours. However, post-Brexit, this proposal can change that and help make holiday pay calculations simple. This proposal will also give employers a choice between two ways to calculate holiday pay for any atypical worker. The government has further proposed that the holiday pay should be paid at 12.07% on each payslip, as that is proportionate to the current statutory annual leave.

If you have any questions regarding holiday pay or need any other advice regarding your employment, get in touch with the legal team at Redmans Solicitors.

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