On 8 November the Government published The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 (catchy title). Among other minor measures these make amendments to the right to annual leave and holiday pay in the Working Time Regulations 1998. Amendments are needed by the end of the year because the change in the status of EU law brought about by the Retained EU Law Act would otherwise leave considerable uncertainty about how the Regulations would work. The Government also wanted to address the perceived problems caused by The Supreme Court decision in Harpur Trust v Brazel which concerns the holiday pay of term-time only workers. 

These Regulations are only in draft form, but they are not being released as part of a consultation – in fact they are the response to two separate consultations (here and here) that took place earlier this year. 

The point is, the draft Regs are not a ‘work in progress’ they are intended to be ready to go and are about to be laid before Parliament. The Explanatory Memorandum accompanying the draft says that one aim of the measure is “Simplifying annual leave and holiday pay calculations under the WTR” and that:  

“The aim of these changes is to minimise unnecessary bureaucracy for businesses (and so make compliance easier) without reducing workers’ overall level of entitlement and protection.”

Para 7.9

The idea that these Regulations simplify the current regime is just laughable. I’ve spent the past week with a wet towel over my head trying to make sense of them. 

Where to begin? 

I’m not going to explain the Regulations as a whole – it would take far too long. Explaining how these Regulations work (or don’t) is probably going to be one of my main activities for the coming year and each part of the Regulations throws up its own issues. In this post I want to look at one new category of worker that the Regulations create. 

The new category is that of ‘irregular hours worker’ and their holiday entitlement under the new Regulations is changing. For holiday years starting on or after 1 April 2024 (!) they are no longer entitled to the four weeks’ annual leave and 1.6 weeks’ additional leave that workers with regular hours will get. 

So as a starting point it is obviously important to know who counts as an ‘irregular hours worker’ and who doesn’t. The new Regulations give us a definition:

a worker is an irregular hours worker, in relation to a leave year, if the number of paid hours that they will work in each pay period during the term of their contract in that year is, under the terms of their contract, wholly or mostly variable 

New Reg 15F(1)(a) WTR 1998

What does ‘mostly variable’ mean?

If a worker always works at least 30 hours a week but then always works between 1 and 10 hours overtime are their paid hours mostly variable? In most weeks their paid hours vary, but most of their paid hours do not vary. Where is the dividing line? Note as well that it is the terms of the contract that matter here rather than the actual hours that are worked. If a worker has a zero hours contract they will be an irregular hours worker even if in practice they consistently work a 40-hour week. 

I have trouble picturing the meeting where civil servants came up with the phrase ‘mostly variable’ and decided that it was clear enough and didn’t need any further definition. How does a phrase like that make it into the final draft? 

But this isn’t my main problem with irregular hours workers.

My main problem is the way in which we calculate the holiday entitlement and holiday pay for an irregular hours worker. Under the old regime we know that they would be entitled to 5.6 weeks’ leave – because everyone was. We would say that over the course of the year there must be 5.6 weeks’ when the worker is not required to work, but still gets paid as normal. We would then get into the question of how we work out a week’s pay and we would see that it is made up of an average of their earnings in the previous 52 working weeks. It’s not necessarily straightforward, but it sort of works. 

Under the new Regulations irregular hours workers are no longer entitled to 5.6 weeks’ leave. Regulation 13 (four weeks annual leave) and Regulation 13A (1.6 weeks’ additional leave) will no longer apply to them in relation to leave years starting on or after 1 April 2024. Instead, their annual leave will be calculated in accordance with a new Regulation – 15B. 

Under Regulation 15B there is no fixed entitlement to annual leave. Rather, the worker ‘accrues’ annual leave over the course of the leave year.

According to new Reg 15B(3)(b) they accrue annual leave:

On the last day of each pay period at the rate of 12.07% of the number of hours that they have worked during that pay period 

If you’re new to this, the figure of 12.07% may seem unusually specific. Here is where it comes from.

If there are 52 weeks in a year, and all workers are entitled to 5.6 weeks’ leave then that means they will be working for 46.4 weeks. 12.07% of 46.4 is 5.6, so if an employee is paid an additional 12.07% on top of what they have earned over 46.4 weeks they will have been paid an additional 5.6 week’s leave. And if a worker works for 46.4 weeks, then the idea is that 12.07% of the hours that they have worked will average out at an additional 5.6 weeks’ of work. So the intention behind accruing leave at the rate of 12.07% is that the holiday entitlement overall will stay the same. The only difference is that instead of 5.6 weeks being the fixed entitlement in each holiday year it has to be accrued as the holiday year progresses. 

But there is a problem with this.

If the holiday year starts on 1 April and the worker has no holiday entitlement to carry over from the previous holiday year (that is a whole other thing) then the worker starts with no holiday entitlement in the current year. It has to be earned.

Reg 15B makes it clear that the leave accrues on the last day of each pay period. Take an employee who on average has been working a 40-hour week and is paid monthly. At the end of each month they will accrue 19 hours of holiday. If their leave year runs from the start of April, that would mean that on the last day of March they will accrue their final instalment of 19 hours of leave. When are they supposed to take that? They have no right to it before it is accrued and they have no right to carry it over into the next holiday year. Do they just lose it as soon as they accrue it? It baffles me that the Regulations do not address this rather obvious point. 

Here’s another problem. 

It is clear (I think) that the holiday entitlement of an irregular hours worker is measured in hours. It accrues at the rate of 12.07% of the number of hours that have been worked in the pay period. So if an irregular hours worker works 60 hours in a week then they will accrue 7.2 hours of leave. After 10 weeks they will be entitled to 72 hours of leave. Suppose at that stage they want to take a week off. 

How many hours is that? 

Common sense might tell you it is 60 hours, but there is nothing in the Regulations to say that. And I’ve used an example where the working week is, in practice, stable and predictable. For most real-world irregular hours workers that will not be the case. How can a worker take a period of annual leave – whether a day, a week or a fortnight – measured in hours when under their contract the amount of hours they are required to work is ‘mostly variable’? 

What Regulation 15B does tell us is that the maximum amount of leave that can be accrued for an irregular hours worker is 28 days (Reg 15B(4)). How many hours would that be? Again there is no way to tell. 

If we can’t work out the physical time that they can take off, can we at least work out how they are paid? Regulation 16 of the 1998 Regulations covers holiday pay and Reg 16(1) is amended by these new Regs to make it clear that any period of leave taken under Reg 15B must be paid at the rate of a week’s pay for each week of leave. So it appears that we are back in the realm of measuring holiday pay by the week. 

Or are we? The new Regulations insert Reg 16(1A) which talks about calculating the hourly rate of pay in respect of which a worker under Reg 15B should be paid. This is the only mention of an hourly rate in the whole Regulations. Does this mean that an irregular hours worker’s holiday pay also has to be worked out in hours? The Regulations don’t actually say that but I don’t see why else you would need to work out an hourly rate. 

You might think that the hourly rate of the worker is straightforward? Heavens no!

Reg 16(1A) gives us a formula to work out the hourly rate. We start with working out what a week’s pay is for that worker and we then divide that figure by the average number of hours worked by the worker in each week used to calculate that figure. 

So the hourly rate is not the hourly rate the worker enjoys now, but the hourly rate they have been paid on average over the previous 52 weeks. If, in that period, our worker was given a pay rise then this will drag the average hourly rate over the preceding 52 weeks to below the current hourly rate. 

To an extent this has always been a problem since the 52-week reference period was introduced in 2020. But under the current regime we don’t use a 52-week reference period to work out an hourly rate – only the total amount of a week’s pay for a worker who is taking holiday in blocks of a week or a proportion of a week. There are swings and roundabouts. A lower hourly rate may result in a lower figure for a week’s pay, but working additional hours will result in a higher figure. For our irregular hours worker however, we are working out their hourly rate of pay – even though that is clearly expressed in his contract – by looking back over the preceding 52 weeks irrespective of whether the rate of pay changed in that time.

There are ways to work around some of these problems. The Regulations allow employers to pay rolled-up holiday pay to irregular hours workers which could bypass a lot of the issues I have set out. But that is no excuse for whoever drafted these Regulations. If Government is going to create a new category of worker, the least we can expect is that:

• The new category is clearly defined
• The amount of holiday they are entitled to in any holiday year is clear enough for them to understand how much holiday they are using up when they take a week off 
• The method for accruing their holiday gives them a fair opportunity to take the holiday they have accrued
• When they take holiday they are not penalised by being paid at a rate below their current hourly rate

As far as I can tell, the draft Regulations that have been presented fail on each of these points. They do not simplify the law – they complicate it. I look at this sort of thing for a living – I actually enjoy it. If I am struggling to make sense of these Regulations then how on earth are people with proper jobs to do going to understand what the new rules are?

These new Regulations are not good enough and need to be amended before they are laid before Parliament. 

Of course, I may have missed something. If anyone knows of a paragraph buried somewhere in these Regulations that I have not seen and which solves all of the problems I have identified, or even if I’ve just misread a paragraph, then please let me know. I would be genuinely delighted if it all suddenly made sense!

I’m going back under my wet towel now.