Written by Brabners LLP
On 10 May 2023, the Department for Business and Trade (DBT) published a policy paper, ‘Smarter regulation to grow the economy’, setting out proposed changes to the Working Time Regulations and holiday entitlement, TUPE and non-compete clauses. The same day saw the government backtracking on its ‘sunset clause’, meaning that EU law on the UK statute books will remain binding unless and until it is revoked or amended.
Then, on 12 May, the DBT published a consultation on its proposed reforms.
The government has identified three main areas for amendment (namely working time, holiday pay and TUPE) where the DBT considers the regulatory framework to be overly complex and administratively burdensome.
Rolled-up holiday pay
Of most interest to umbrella companies will be the Government’s proposal, following years of lobbying, to make rolled-up holiday pay lawful. This announcement follows on the heels of the Government’s consultation on allowing employers to calculate holiday pay as 12.07% of wages, effectively overturning the Supreme Court’s decision in the controversial case of Harpur Trust v Brazel.
Currently, the practice of paying rolled-up holiday pay is deemed to be contrary to EU law because it could deter workers from actually taking annual leave, which is important for their health and wellbeing.
However, this risk has to be balanced, firstly, against the practical difficulty of calculating holiday pay using the traditional method when workers have variable working patterns.
Secondly, businesses which currently rely on the “use it or lose it” approach to avoid paying holiday pay to workers unless it is requested could now face pressure to pay rolled-up holiday pay, although the intention is that employers will not be obliged to adopt a rolled-up holiday pay model if the proposed new legislation comes into force.
Combining basic and additional annual leave
Currently, under the Working Time Regulations 1998 (“WTR”), the statutory minimum annual leave entitlement of 5.6 weeks is made up of 4 weeks set by EU legislation and an additional 1.6 weeks under UK law.
Depending on which “pot” of annual leave a worker is taking at any one time, their holiday pay is required to be calculated slightly differently because of the effect of EU law, which requires 4 weeks of leave to be calculated based on a worker’s “normal remuneration”. What counts as normal remuneration is unclear and has been the subject of numerous legal cases in recent years. In reality, many businesses already pay the entire 5.6 weeks’ holiday at the same rate because of the administrative burden of having to pay leave at differing rates. The government is seeking views on how holiday pay is currently calculated and how employers and workers think it should be defined in the legislation.
Whilst this is a welcome proposal for traditional employers, umbrella companies, agencies and other employers in the gig economy generally already calculate holiday pay as 12.07% of a worker’s total pay, without differentiating between “normal” and “abnormal” remuneration.
Nevertheless, the proposed simplification of what is an unnecessarily complex area of law is to be welcomed.
Reforming the record-keeping obligations under the Working Time Regulations 1998
The government is also proposing to amend the WTR to remove any legal requirement for employers to keep records of the daily working hours of their workers.
Whilst this proposed administrative easing may be of benefit to some employers, this is of little practical relevance to umbrella companies and agencies who will still expect workers to complete timesheets to verify the hours they have worked in order to be paid. Additionally, records of working time are still legally required to be kept in order for employers to demonstrate compliance with National Minimum Wage requirements.
TUPE consultation requirements
Broadly speaking, TUPE applies where a business or part of a business is sold, or where an outsourced service is transferred to a different service-provider or is brought back in-house by a client. TUPE operates to ensure that employees working in the relevant part of the business transfer into the employment of the buyer or incoming service-provider with their terms and conditions of employment intact.
Where a TUPE transfer is envisaged, most employers are currently required to inform and consult with elected representatives of the affected employees, rather than with those employees directly.
Currently there is an exception to this requirement for micro businesses (those with fewer than ten employees) who are able to inform and consult affected employees directly. However, for business with ten employees or more, they are required to arrange for employee representatives to be elected for the purposes of this process, assuming that there are no appropriate representatives already in place.
The government is proposing to extend the micro business exemption to businesses with fewer than 50 employees, as well as to businesses of any size involved in the transfer of fewer than ten employees.
There is currently no suggested timescale for the introduction of these proposed changes, and indeed it remains to be seen whether the proposals will come into force at all, although given the welcome reception from employers we anticipate that the changes will be made in some form or other.
The consultation remains open until 7 July 2023 so any businesses or workers wishing to share those views are encouraged to respond.
Responses should be made online or by email to email@example.com.
This bulletin is for general guidance purposes only and should not be used for any other purpose.
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