Written by Brabners LLP
On 1 January 2024, the Government implemented substantial changes to the Working Time Regulations 1998 (“WTR”) in relation to annual leave and holiday pay entitlements.
The changes predominantly affect “irregular hours” and “part-year” workers. The statutory entitlement of 5.6 weeks’ holiday per year, and the principles from cases such as Harpur Trust v Brazel, no longer apply to part-year and irregular hours workers with effect from holiday years beginning on or after 1 April 2024.
Instead, part-year and irregular hours workers will accrue holiday in proportion to the amount of time that they work. Employers may also lawfully pay rolled-up (advanced) holiday pay to such workers at the rate of 12.07% of their pay.
Whilst this news was welcome to many umbrella companies and agencies in principle, the new legislation was confusing and unclear in several respects. The Government published non-statutory guidance to sit alongside the new legislation, but whilst that guidance was helpful in some ways, in others it was directly contradictory to the new legislation and created further confusion.
On 1 April 2024, the Government updated the guidance in a few areas. The new guidance can be accessed here and the main changes are summarised below.
Part-year workers
Under the new legislation, someone is a part-year worker if, under the terms of their contract, they are required to work only part of the year and there are periods within that year of at least a week which they are not required to work and for which they are not paid.
That definition is, on the face of it, fairly clear. It suggests that teachers, for example, would be classified as part-year workers because they are only required to work during term time and they are only paid for working during term-time, even though many teachers receive an annualised salary (i.e their pay is spread out in equal monthly instalments so that they receive a regular income even during school holidays). However, the original version of the guidance suggested that such workers who received annualised salaries would not be classed as part-year workers under the WTR. Since the changes to the WTR were largely driven by the case of Harpur Trust v Brazel, which involved a teacher, this stance was surprising. The updated guidance now indicates that workers who work for part of the year but receive their pay spread throughout the year do still meet the definition of a part-year worker.
Holiday accrual for irregular hours and part-year workers during periods of statutory leave
If an irregular hours or part-year worker takes statutory leave (sick leave or family leave), how much holiday should they accrue during that time? The updated WTR say that you should calculate the average number of hours per week that they worked during the 52 weeks before they started the sick leave or family leave, and multiply that number by 12.07% to give you the amount of holiday that they will accrue during each week of their statutory leave. For the purposes of this calculation, the WTR say that you should ignore any weeks in that 52-week period where the worker was on sick leave or statutory leave (bringing earlier weeks into account to make up the 52), but otherwise you should take all other weeks into account, including weeks during which the worker did not work any hours. This suggests that in order to find the worker’s average working hours, you should divide their total working hours in the 52-week period by 52, although the WTR do not expressly address this.
The original guidance, however, stated that you should divide the total hours by 46.4 (i.e disregarding the time when the worker will have been on holiday). The updated guidance acknowledges the fact that the WTR do not specify how the calculation should be done, but the guidance still suggests that the worker’s hours should be divided by 46.4 rather than 52 to reach their average weekly working hours (which would produce a more favourable result for the worker). It remains to be seen how this point will be interpreted by an Employment Tribunal.
Bonuses
The question of whether bonuses should be included in the calculation of holiday pay for permanent staff has been debated in case law for years. The updated WTR state that holiday pay should include “payments which are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract”.
This begs the question of whether annual performance bonuses should be included. Our view is that that they should, if they are performance-related (compared to a Christmas bonus which is paid to all staff as a goodwill gesture irrespective of their performance, for example), but the correct legal position is far from clear. The original version of the guidance didn’t address this issue at all. The updated guidance says, “whether bonuses are included in normal holiday pay depends on the nature of the bonus”. Unfortunately this does not provide any clarity and no doubt this issue will be litigated in Employment Tribunals in due course.
Any clearer?
In short, the updated guidance has not cleared up the confusion surrounding the new holiday pay rules. The new rules were drafted in a hurry and it shows. Employers should keep an eye out for any Tribunal judgments relating to these issues to see how Judges interpret the new legislation. In the meantime, many employers will be left scratching their heads.
This bulletin is for general guidance only and should not be used for any other purpose.
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