New regulations unveiled this week could lead to an average £1,000 increase in the annual earnings of temporary and contract workers.
Under the new rules, individuals with irregular or zero working hours, or those employed seasonally, will now be permitted to receive ‘rolled-up’ holiday pay.
This method involves incorporating holiday pay into their standard wages rather than providing a separate payment during their time off. Consequently, workers will receive a slightly higher hourly rate, and businesses will no longer need to calculate holiday entitlement separately.
The current prohibition on rolled-up holiday pay stems from a 2006 European Court ruling expressing concerns that workers might be disincentivised to take leave, as they could earn more by continuing to work.
While the government initially proposed extending rolled-up holiday pay to all workers, it has decided against it, deeming it less advantageous for those with regular hours.
New year regulations
These regulations, effective from January 1, 2024, mark a significant shift in holiday laws that will impact numerous employers. The changes also introduce a new method for calculating holiday entitlement.
The swift implementation follows the government’s release of two sets of proposals earlier this year aimed at reforming holiday rights. The government has now responded and provided draft regulations.
Key features of the new Employment Rights Regulations 2023
- Retaining two distinct ‘pots’ of annual leave with different pay rates (4 weeks at the normal rate of pay and 1.6 weeks at the basic rate of pay).
- Introducing rolled-up holiday pay for irregular hour workers and part-year workers, encompassing certain agency workers.
- Plans to legislate an accrual method, calculating entitlement at 12.07% of hours worked in a pay period for irregular hour workers and part-year workers from the first year of employment onward.
- Simplifying Transfer of Undertakings (Protection of Employment) regulations and reducing administrative burdens for small businesses.
Tania Bowers, the global public policy director at The Association of Professional Staffing Companies (APSCo), expressed satisfaction with the inclusion of rolled-up holiday pay in the regulations, emphasising its necessity for protecting agency and umbrella workers.
She urged recruiters and umbrella companies to communicate the importance of workers taking their owed holiday or pay in accordance with the Working Time Regulations.
