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  • Crawford Temple

Holiday Pay Still in The Spotlight – Part 2

Last time we looked at the Harpur Trust vs Brazel case in the Supreme Court, which dealt with how holiday pay is calculated. Here we look at the possible effects of the consultation that was launched earlier this year, discuss ‘rolled-up’ holiday pay, and consider what the outcome might be.

Government Consultation

The Government’s consultation, Calculating holiday entitlement for part-year and irregular hours workers, was launched on 12 January 2023 and closed on 9 March 2023. It invited responses from employers and workers, representatives of business groups, unions and those representing groups in the labour market in an attempt to gather a diverse range of views from as many stakeholders as possible.

The Government wants to simplify employment legislation and provide clarity so that employers can comply more effectively, citing the increasingly complex holiday pay and entitlement legislation they have introduced. Following it, they say, has become onerous for employers and the risk is that it might not achieve its original intention. They cite two pieces of legislation, The Working Time Regulations 1998, and the Employment Rights Act 1996. The Government stresses that it wants to ensure that any disparity in holiday pay and entitlement for workers, especially agency workers who may have complicated contractual arrangements, is proportionate to the time they spend working. It is also keen to ensure that any changes considered do not impact negatively on other aspects of the legislation.

Its preferred method to determine what holiday pay contractors are entitled to is to multiply the number of hours worked per month, or at the end of an assignment, by 12.07%. This, the government says, would simplify the process for both employers and contractors.

Contractual Changes

If the Government does make changes to the method of determining what holiday pay contractors are entitled to, many of the contractual changes we discussed last time which resulted from the Supreme Court ruling would no longer be required.

Professional Passport predicts that in such aneventuality, many providers would simply revert back to their previous terms which, as they have been in place for many years, are simply understood by all parties.

Other Changes

Matthew Taylor, Chief Executive of the Royal Society of the Arts, produced a 2017 report entitled ‘Good work: the Taylor review of modern working practices’ which aimed to consider ‘how employment practices need to change in order to keep pace with modern business models’, and made a number of recommendations for employment reforms.

In the report, Mr Taylor highlighted the issue of ‘rolled up’ holiday pay and the fact that it was unlawful, despite many workers preferring to have their holiday pay entitlement paid each week. Mr Taylor recommended that changes be made to legislation to allow this practice, and for it to be considered the norm. However, this suggestion was dismissed at the time.

We have covered the thorny issue of holiday pay several times, here and here, for example. And we’ve also observed various reports of certain umbrella providers which have retained contractors’ holiday pay by relying on terms in their contracts which are either unread or misunderstood. These contractual arrangements make it clear that unused allowances will be lost if not taken which, although it makes the practice legal, in our opinion is definitely not moral.

We expect a large number of respondents to the consultation to press for greater clarity on ‘rolled up’ or advanced holiday pay, and also for what is an acceptable practice, and we await the Government’s response to these issues with great interest, to see if it has changed.

Similarly, clarification and guidance is also needed on the issue of umbrella companies which retain contractors’ holiday pay if it has not been claimed. The Consultation clearly differentiates and recognises the unique position of umbrella workers and it appears to seek to provide specific rules for their particular circumstances. Again, we wait for the outcome with interest.

What will be the outcome?

The Consultation has now closed and the Government has said that it will address any disparities it discovers.

We cannot but hope that we see action in response to this consultation faster than we have seen any results from the Call to Evidence into umbrella companies which was launched in 2021 and which we are still waiting to hear from.

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