Navigating Changes in Holiday Regulations: A Closer Look

17 August 2023 | Business & Workplace | Author: Emma Allen

In the realm of post-Brexit employment law, managers remain watchful for shifts in regulations. New calculations for holiday entitlement and pay are on the horizon, necessitating preparation.

The Retained EU Law (Revocation and Reform) Act 2023, which passed in June, delineates the future treatment of EU-based laws. While much of the employment law framework will persist, providing employers with a degree of certainty, a key focus for immediate reform is the computation of holiday entitlement and pay. The Government's objective is to streamline these calculations.

At present, most individuals are entitled to 5.6 weeks of annual leave or the equivalent pro rata. This comprises four weeks of EU-regulated leave and 1.6 weeks of domestically regulated leave.

The challenge arises due to the differing rules for pay calculation under these two entitlements. For the four weeks of EU leave, calculations must encompass bonus or overtime payments; generally, these cannot be carried forward into a new holiday year. On the other hand, the domestic provision necessitates only a basic rate payment for the 1.6 weeks of holiday pay, which can be carried over with mutual agreement.

The evolving scenario prompts questions regarding the Government's stance: Will they opt for full-rate pay throughout the entire 5.6 weeks, encompassing elements such as bonuses, commissions, and overtime? Or will they lean toward the basic rate?

"Regrettably, there may be some disappointment on either side. Employers might focus on potential added costs resulting from an upward adjustment, while employees could face disputes if the outcome leads to reduced pay." 

Another proposition to simplify holiday pay involves the concept of rolled-up holiday pay. This entails workers receiving holiday pay alongside their regular earnings, through an additional percentage on their wages every workweek, instead of upon taking time off. Presently, this practice is disallowed, and holiday pay must be disbursed when leave is taken.

"On a positive note, certain employers may find that this approach simplifies holiday calculations for variable work hours. However, if adopted, it would necessitate updates to contracts and payslips."

Addressing rolled-up holiday pay raises concerns, as it could discourage workers from taking time off due to financial uncertainties during their holiday periods. This might lead to stress and burnout, necessitating a system to ensure everyone enjoys their annual leave.

Emma Allen, Director and Employment Solicitor

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Please note: This is not legal advice; it is intended to provide information of general interest about current legal issues.