In June 2023, the UK passed the Retained EU Law (Revocation and Reform) Act 2023 with the intention to consolidate how the UK will treat EU Law going forward.
Within the post-Brexit reforms, the majority of employment-related law will remain consistent. However, one reform is the calculation of holiday entitlement.
What is the current position?
Under EU Law, UK workers who work a 5-day week must receive at least 28 days paid annual leave per year. This is the equivalent of 5.6-weeks holiday per year, or the equivalent pro rata. This 5.6-week entitlement is broken down as up to 4-weeks EU regulated leave and 1.6-weeks of domestic regulated leave.
The Government is keen to simplify how holiday is calculated as the existing two entitlements have different rules as to how they are calculated:
- The 4-week EU entitlement includes bonus and overtime payments and generally these entitlements cannot be carried over to the following holiday year; and
- 6-week UK entitlement can be carried over through written agreement of the employer and is basic pay only.
What will change?
The reform proposes to introduce rolled-up holiday pay which means workers will receive their holiday pay through an extra percentage in addition to their earned pay on a weekly or monthly basis, not when they take their holiday (currently not allowed as holiday must be paid their holiday when it is taken).
In addition, the current two separate leave entitlements would be merged, although the total amount of statutory leave entitlement would remain the same.
One element of the reform that is silent is whether the government will decide to include the EU calculation which includes bonus and overtime payments or basic pay only. It is also unknown whether the proposal regarding rolled-up holiday payments will be implemented.
What impact will the proposed changes have on employers and employees?
The simplification of the holiday calculation is likely to benefit employers, particularly where they have workers who work irregular hours. However, employers will be required to amend contracts, payslips, and their holiday policies.
The proposal regarding rolled-up holiday could lead to workers not taking holiday as they budget themselves based on their net income per month, which would reduce on months they are taking holiday. This could have a detrimental long-term impact on workers who may become affected by stress and burnout through lack of breaks. The current system enables workers to take holiday without a reduction in earnings as holiday is paid when it is taken.
Website content note: This is not legal advice; it is intended to provide information of general interest about current legal issues.