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Government opens holiday pay consultation

Makbool Javaid, Partner - Simons Muirhead Burton

Over time, holiday pay and entitlement legislation has become complex and, in some cases, can be challenging for employers to follow due to changes in case law. There is a risk that in certain circumstances this legislation may not be fully achieving its original intention. The main pieces of legislation that govern holiday entitlement and pay for workers are the Working Time Regulations 1998 and the Employment Rights Act 1996. There is also a significant body of domestic and retained EU case law.

In July 2022, the Supreme Court handed down its judgment on Harpur Trust v Brazel. This case concerned the calculation of holiday pay and entitlement of a permanent part-year worker on a zero-hours contract. The judgment held that the correct interpretation of the Working Time Regulations 1998 is that holiday entitlement for part-year workers should not be pro-rated so that it is proportionate to the amount of work that they actually perform each year. Part-year workers are entitled to 5.6 weeks of statutory annual leave calculated using a holiday entitlement reference period to determine their average weekly pay, ignoring any weeks in which they did not work. As a result of this judgment, 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 has launched a consultation to try to address this disparity to ensure that holiday pay and entitlement received by workers is proportionate to the time they spend working. The consultation seeks to understand the implications of the judgment on different sectors including agency workers who have complex contractual arrangements.

In the consultation the Government is proposing to introduce a holiday entitlement reference period for part-year and irregular hours workers, to ensure that their holiday pay and entitlement is directly proportionate to the time they spend working. They also want to understand how entitlement is currently calculated for agency workers and how the consultation proposal might be implemented.

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