Following publication of a policy paper Smarter Regulation to Grow the Economy, the UK government has launched a consultation on retained EU employment law. The consultation asks for views on proposals to reform the Working Time Regulations (record keeping, annual leave entitlement and holiday pay) and TUPE (information and consultation).

Retained EU employment law

On 10 May 2023 the government announced that it is reversing its position - all retained EU law will now remain binding in the UK from 31 December 2023 unless expressly repealed or amended. A list of the EU retained laws to be repealed has been published here and, so far at least, the only employment ones relate to posted workers and working time for road tanker drivers.

In addition, the government published a policy paper and consultation setting out some proposals for post-Brexit employment law reform. The consultation confirms that workers' rights under the Working Time and TUPE Regulations will be preserved but that the government wants to make some changes "to ensure they are tailored to the needs of the UK economy and help create the conditions for growth".

Working time record keeping requirements

Under the Working Time Regulations, employers must keep and maintain 'adequate' records showing that (i) working time (including overtime) for workers who have not opted-out does not exceed an average of 48 hours per week; and (ii) the limits on night work have been complied with. A decision of the European Court of Justice ('ECJ') goes further, however, and requires employers to accurately record the hours worked every day by each worker including overtime, rest breaks and rest periods (see our blog).

The government is proposing to remove the requirement on businesses to keep a record of all workers' daily working hours, on the basis that it imposes a disproportionate burden and cost.

Annual leave entitlement

Under the Working Time Regulations, workers are entitled to 5.6 weeks' annual leave consisting of 4 weeks' leave derived from the EU Working Time Directive ('basic' leave); and an additional 1.6 weeks ('additional' leave). Currently different rules apply to the EU derived basic leave and the domestic additional leave, including holiday pay rates; whether unused leave can be carried over into the following holiday year; and which leave entitlement should accrue or be taken first. This can cause confusion and administrative difficulties.

One of the government's key announcements is the proposal to merge basic and additional leave into a single statutory entitlement to 5.6 weeks' paid annual leave, governed by one set of rules.

Holiday pay Currently workers with normal working hours should receive their normal remuneration, as set out under case law, in respect of the 4 weeks' basic leave (this can include bonus, commission, some types of overtime). However, holiday pay for the additional 1.6 weeks can be restricted to basic pay (unless the contract provides otherwise).

The consultation asks for views on whether to use a single method of calculating holiday pay for the total 5.6 weeks' leave going forward (which is what many employers do in practice) and what rate holiday pay should be paid at (normal remuneration or basic pay).
Carry over Under the proposals the rules on carrying over holidays will stay the same. 

1.6 weeks will be able to be carried forward into the following leave year if permitted in terms of a written agreement between the worker and their employer. The whole annual leave entitlement can only be carried over in limited circumstances e.g. if the employee has been on long-term sick leave or maternity/adoption/parental leave.
Accrual Currently workers accrue 1/12th of their annual leave entitlement each month until the end of their first year of employment (unless the contract provides more generous terms). The consultation asks whether, in the first year of employment, it would be easier to calculate annual leave entitlement at the end of each pay period.

Rolled-up holiday pay

Rolled-up holiday pay is a system in terms of which a worker receives an additional amount with every payslip to cover their holiday pay, as opposed to receiving holiday pay only when they take annual leave. Although currently unlawful following a 2006 ECJ ruling, in practice it is still used in certain sectors for workers on irregular hours or zero-hours contracts (on the basis that it is easier than using the 52-week holiday pay reference period applicable to workers with variable hours/pay).

The government wants to introduce rolled-up holiday pay as an option. The consultation proposes that rolled-up holiday pay should be paid at 12.07% (5.6 weeks of statutory annual leave divided by 46.4 working weeks of the year) of a worker’s pay, adjusted to account for any contractual leave beyond the statutory annual leave entitlement. Employers would need to make workers aware if they choose to start paying rolled-up holiday pay and mark it clearly on payslips.

TUPE information and consultation

The Transfer of Undertakings (Protection of Employment) Regulations require both the transferor and transferee to inform and (in some circumstances) consult with employee representatives of their affected employees. There is an exemption for micro businesses (less than 10 employees) who can inform and consult directly with the affected employees if there are no existing appropriate representatives.

The government intends to introduce flexibility for (i) businesses with fewer than 50 employees; and (ii) transfers affecting less than 10 employees. In either of these situations, it will be possible to inform and consult directly with the affected employees where there are no existing employee representatives in place.

What's next?

The consultation on the proposed reforms closes on 7 July 2023 and information on how to respond can be found here.

The detail of the changes and potential timescales will only be known when the government responds to the consultation in due course. For now, businesses should bear the proposals in mind particularly if they are reviewing employees' terms and conditions or considering introducing new payroll / time recording systems.

If you would like to discuss the impact of any of the proposed changes, please get in touch with the Brodies Employment and Immigration team. Workbox by Brodies subscribers can access practical guidance on working time, annual leave and TUPE. There is also a What's New? page which enables users to horizon-scan by tracking recent and forthcoming legislation, cases and consultations relevant to employment and immigration law.

The government has issued its response to the consultation and published draft legislation: see our subsequent blog published 13 November 2023.


Julie Keir

Practice Development Lawyer

Ashley Bell