In an unexpected move, the Government has launched a consultation on holiday entitlement and pay following the Supreme Court ruling in Harpur Trust v Brazel. The judgment in Harpur Trust was handed down in Summer 2022 and many organisations and legal professionals alike have spent the past few months getting to grips with how to implement the ruling in practice. For more information on the Supreme Court decision, see our blog Paid holiday for part-year workers cannot be pro-rated.
The consultation paper talks about the fact that “holiday pay and entitlement legislation has become complex” and that “there is a risk that in certain circumstances this legislation may not be fully achieving its original intention”. The paper goes on to discuss the judgment in Harpur Trust and that, as a result, “part-year workers are now entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year”.
The Government states in the paper that it is “keen to address this disparity to ensure that holiday pay and entitlement received by workers is proportionate to the time they spend working”.
What is the Government proposing?
The consultation paper is titled “Calculating holiday entitlement for part-year and irregular hours workers” and, in a nutshell, proposes a reversal of the conclusions reached in Harpur Trust. If implemented, employers would be able to return to pro-rating holiday for part-year workers based on a 12.07% method.
Some of the Government’s key proposals in the consultation are:
- Introduce a 52-week holiday entitlement (as opposed to pay) reference period including those weeks in which workers perform no work, which would allow employers to pro-rate holiday entitlement for part-year workers so that they receive leave in proportion with the total annual hours they work.
- Move away from the Calendar Week Method of calculating holiday entitlement established in Harpur (ie dividing the total hours worked over the 52-week reference period (excluding weeks not worked) by 46.4 to find the average length of a working week, multiplied by 5.6 to give the worker’s total annual statutory holiday entitlement in hours).
- Instead, return to a position which allows employers to multiply the total hours worked by 12.07% (this is a figure that many employers will be familiar with and is equivalent to 5.6/46.4 expressed as a percentage). The paper suggests the Government’s proposal for holiday entitlement can be expressed as the following simple calculation: “Hours worked in previous 52 weeks x 12.07% = annual statutory entitlement in hours”.
- The 52-week holiday entitlement reference period would be a fixed reference period (rather than rolling). The proposal is that at the beginning of a new leave year, the worker’s holiday entitlement would be calculated based on the previous 52 weeks. This would give a worker a fixed pot of annual leave that they would then be able to draw from throughout the leave year.
- Holiday entitlement during the first year of employment would be calculated at the end of each month based on the actual hours worked in that month to be proportionate to the time worked. The proposed calculation is “hours worked in previous month x 12.07% = monthly statutory entitlement in hours”. The paper suggests that employers could use their discretion to allow a worker in their first year to take more annual leave than they had accrued in advance.
- To calculate how much holiday a worker with irregular hours would use to take a particular day off, especially if their hours worked each day fluctuate, the Government’s preferred approach would be to use the reference period to calculate a flat average working day, so that when a worker took a day off, they would take off the number of hours calculated from this average working day.
What is the consultation asking for?
The consultation invites views from as many stakeholders as possible, noting that “although the consultation is technical in nature, the right to annual leave is one that applies to millions of workers across Great Britain”.
Responses are requested to specific questions posed in relation to the proposals outlined above, as well as any more general comments. The stated audience for the consultation is wide and includes employers, workers, business representative groups, unions and those representing the interests of groups in the labour market. Given the difficulties the ruling in Harpur Trust has caused among organisations since its publication, we fully expect a high level of engagement with the consultation.
Is anything likely to come from the consultation?
Previous Government consultations have been taking well over a year for the Government to respond, let alone implement any changes in response (see for example, the Government’s recent consultation response on flexible working, which was first introduced in 2021 and is still ongoing). However, our sense is that the issue of holiday entitlement for part-year workers is costing the state and other employers a significant amount – commentary suggests that the Government’s impact assessment calculated that the proposed changes would save businesses £113m per annum. This potentially gives the Government a greater incentive to make changes on this issue and to move quickly, so we would not be surprised if we saw a faster response than usual to this consultation. Moreover, the Retained EU Law Bill (if passed) potentially gives the Government an easy mechanism by which to make any legislative changes required to implement its proposals. However, despite this, it is hard to give any definitive guidance on when we might see any changes come into effect.
Should organisations take any action now?
Holiday entitlement and pay can be notoriously difficult to calculate, especially for workers with irregular hours, and the Supreme Court decision in Harpur Trust did nothing to alleviate this. Although, given the complexities no system of calculation is likely to be perfect, the Government’s proposals seek to provide some certainty and address a number of the issues thrown up by Harpur Trust.
As things stand, the Supreme Court decision in Harpur Trust remains binding law unless and until the Government introduces legislation to change how holiday entitlement and pay are calculated. Employers who have not yet taken any steps to amend their holiday practices may wish to pause and await the outcome of the consultation before doing so, although they should be aware of the potential exposure to complaints by current staff and may wish to take specific legal advice on their situation.
The consultation has a closing date of 9 March 2023 and a link to the consultation can be found here.
If you require further information about anything covered in this blog, please contact Lauren Bennett or your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, January 2023