Global Compliance Desk – United Kingdom

United Kingdom: Proposed Amendments to Working Time Recording Requirements and Annual Leave provisions

On January 1, 2021, the UK marked a significant milestone by officially departing from the European Union Directive on Working Time (Directive). The UK government introduced the Retained EU Law (Revocation and Reform) Bill “Retained EU Bill” in the Parliament in 2022 in order to change the application of the EU Working Time Directive and move towards a UK-enacted legislation on working time which shall depart from the EU law completely with regards to calculation of duration and pay of annual leave, time recording requirements and several other employment law provisions. 

Recently on November 8, 2023, in light of receiving a consultation paper on concerns related to the Retailed EU Bill the UK Government published a response. The response by the UK government made several changes to the initial proposal under the Retailed EU Bill and crafted a legal framework that is more adaptive and aligned with the country’s specific requirements.   

Time Recording Requirements – In a landmark decision in 2019 [CCOO vs. Deutsche Bank SAE], the European Court of Justice (ECJ) emphasized the need for employers in the EU to set up “an objective, reliable and accessible system enabling the duration of time worked each day by employees to be measured. ” 

Refer to our previous blog on (CCOO) v Deutsche Bank SAE for detailed information.

Effective January 1, 2024, the Retained EU Bill shall amend the provisions relating to time recording requirements of the Working Time Regulations (WTR). In accordance with the Retailed EU Bill, employers shall not be obliged to record daily working hours if compliance with the WTR can be shown through other means that the employer deems fit. However, it shall be mandatory for employers to maintain accurate records of the workplace and employees’ work schedules.

Proposal One – Annual Leave Pay and Entitlement Reform 

The proposed amendments focus on enhancing regulations in two crucial aspects concerning annual leave entitlement and compensation. 

• • The first proposal aims to establish a unified statutory annual leave entitlement, modify annual leave payment rates, redefine the calculation of leave during the initial year of employment, and address the implications of rescinding COVID-19 Regulations associated with leave.
  •  The second proposal pertains to the implementation of rolled-up holiday pay.

Single annual leave entitlement and rate of pay

Currently, every employee is entitled to 5.6 weeks (28 days) of annual leave under the Working Time Regulations 1998 (WTR). The first four weeks (20 days) of this entitlement are set out under the EU Working Time Directive requirement. The additional 1.6 weeks (8 days) leave is covered by regulation of domestic law. The pay structure of the annual leave entitlement is provided below –      

• • A standard 4-week leave in alignment with the Working Time Directive paid at the regular rate.
  • An additional 1.6 weeks of leave is paid at the basic rate.

The UK government’s initial proposal sought to streamline the annual leave entitlement and pay provisions, consolidating them into a single 5.6 weeks of annual leave entitlement at a uniform pay rate. 

However, in response to feedback, the government has opted not to introduce a unified annual leave entitlement with a single pay rate. The government decided that the current framework with its two separate leave entitlements (Standard 4 weeks annual leave entitlement under the EU Directive and the 1.6 weeks of annual leave under the UK domestic employment regulation) along with the distinct pay rates for the annual leave shall remain unchanged. 

Carry-Over Leave Policy: Maternity/Family-Related Leave

Currently, if an employee cannot take all of their leave entitlement because they’re already on a different type of leave (for example sick, maternity, or parental leave), they can carry over some or all of the untaken leave into the next leave year.

In such cases, the employer is obligated to permit the employee to carry over a maximum of 20 working days i.e. 4 weeks out of their 28 days of leave entitlement to the next year if they were unable to take annual leave in the current year.

In accordance with the proposed Retained Bill, employees who are unable to utilize their 4-week or 1.6-week statutory annual leave entitlements due to maternity or family-related leave will be permitted to take this leave by the conclusion of the subsequent leave year.

Furthermore, employees unable to take the 4-week leave entitlement due to sick leave will have an 18-month period from the end of the leave year in which it accrued to avail themselves of this entitlement.

This provision is applicable to the entirety of an irregular hours or part-year employee statutory entitlement for leave years starting on or after April 1, 2024.

COVID-19 

Currently, the Working Time Coronavirus Regulation, 2020, allows employees to save and use up to 4 weeks of unused annual leave for 2 years due to coronavirus which will no longer apply.

 Effective January 1, 2024, employees will no longer be permitted to gather more unused leave for COVID-19, but the already saved unused leave can be utilized until March 31, 2024, or employees can cash out their unused leave when the employment ends or prior to that date. 

Proposal Two – Rolled – Up Holiday

Rolled-up holiday pay is where an employee receives an additional amount or enhancement with every payslip to cover their holiday pay, as opposed to receiving holiday pay only when they take annual leave. 

 Initially, the Government aimed to make rolled-up holiday pay an option for all employees. However, based on feedback received during the consultation process the plan has been adjusted. Effective April 1, 2024, rolled-up holiday pay will now be introduced specifically for employees with Irregular hours and Part-Year employment. In cases where there are two rates of holiday pay, the Government will legislate to ensure that employers using rolled-up holiday pay calculate it based on an employee’s total earnings in a pay period.

 The proposed changes would allow employers to prorate holiday entitlement for part-year workers so that the holiday pay they receive is proportional to the weeks they work. Employers shall be able to calculate holiday entitlement for part-year workers and irregular-hours workers as 12.07% of the actual hours worked in a pay period. Hence when employers choose to pay rolled-up holiday pay, they will be required to calculate 12.07% of a worker’s “total earnings” over a pay period.

However, an average taken over a 52-week reference period will still need to be used for irregular-hours workers and part-year workers on long-term sick leave, maternity leave, or other forms of family leave.

Example: An employee works 100 hours in a given pay period.

• • Accrual Rate: 12.07% of hours worked
  • Accrual Calculation: 100 hours * 12.07% = 12.07 hours 

Therefore, an employee will accrue 12.07 hours of leave entitlement for that pay period.

Take Away – Employers must take proactive steps to comply with the amendments before the latest adjustments come into effect. They must review and potentially revise their policies in order to align with the upcoming changes to the existing leave requirements.