On 10 May 2023 the UK Government launched the first in a series of upcoming regulatory reform announcements, focussed on growing the economy and reducing the amount of “red tape” imposed on businesses, following Brexit.

The announcement focussed on proposed changes to UK employment law, including in particular changes to holiday pay. The government launched a consultation paper regarding the proposed changes shortly afterwards. We have set out details of these proposed changes below:

What are the proposed changes? 

1. Working Time Regulations and changes to holiday pay 

• Merger of “normal” annual leave and “additional” annual leave to create one pot of statutory annual leave entitlement
  Currently, workers have two distinct holiday entitlements – 4 weeks’ leave derived from EU law and a further 1.6 weeks “UK” leave. The government proposes reducing the administrative burden and complexity of calculating holiday pay by merging these two entitlements, whilst maintaining the same overall holiday entitlement.
  
  Whilst a simplification of the holiday entitlement is to be welcomed, currently there are also two separate sets of rules for calculating holiday pay, depending on whether you are dealing with the EU-derived 4 weeks’ leave or the UK-derived 1.6 week’s leave. We assume (although the government has not specified this in its announcement) that the government also intends to simplify the method for calculation of holiday pay.
  
  The government’s consultation paper invites respondents to comment on the appropriate method of calculation moving forwards. If the “UK leave” method is used to calculate all holiday pay, this would mean that pay elements such as overtime and commission would no longer be included in holiday pay for most workers, so this would be less generous for many workers.
  
  
• Permitting “rolled-up” holiday pay
  Rolled up holiday pay (the practice of not paying holiday pay while the worker is on holiday but making an additional payment during the weeks that the worker works, to cover pay due in respect of holiday periods) has been unlawful under EU law for a number of years. However, the government is proposing to permit rolled up holiday pay in order to allow workers to receive their holiday pay with every payslip.
  
  This will be welcome news for anyone with casual or bank staff, particularly following the recent case of Harpur v Brazel Trust and the recent government consultation paper in this area, which will presumably now be aligned with this proposal and any resulting legislation. The latest consultation paper proposes that rolled up holiday pay would be permitted for all types of workers, not just casual workers.
  
  
• Removing record keeping requirements for working hours
  The government has stated that it intends to “remove retained EU case law that imposes time-consuming and disproportionate requirements on business for working hour records to be kept for almost all members of the workforce. This will cut red tape for businesses and help them save £1 billion per year while protecting the rights of workers”. The government is referring to a 2019 case, in which the ECJ stated that the Working Time Directive (WTD) required Member States and employers to introduce “an objective, reliable and accessible system enabling the duration of time worked each day by each worker to be measured”.
  
  This case held that records must be kept in relation to the right to a minimum daily rest period of 11 consecutive hours in each 24-hour period; the right to a minimum uninterrupted period of rest of 24 hours in each seven-day period; and the limit on the maximum weekly working time. The ECJ determined that the UK government had not implemented the WTD properly by failing to require employers to do so. There was some debate at the time of the case as to whether the case was relevant in the UK, given the exit from the EU.
  
  The government is proposing to clarify that businesses do not have to keep a record of daily working hours of their workers. In practice, few employers currently keep such records, so the removal of this obligation may have little impact.

Final thoughts

While no specific timescales have been confirmed, we anticipate that the likely timescale is at least 9 – 12 months for completion of the consultation process and for the government to pass the secondary legislation required to amend the Working Time Regulations accordingly.

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