Holiday pay calculations could change for workers

The Taylor report ‘Good Work’ addresses some of the issues around individuals missing out on key employment rights such as holiday pay and how extending the pay reference period could be one solution.

The review team for the Taylor report heard evidence that the current employment status framework and the rights of individuals under each status are difficult to understand – an issue we are already aware of. Consequently this creates difficulties for both individuals and employers, but the outcome is likely to be more detrimental to individuals who could be missing out on key rights, such as holiday pay.

Continuity of employment

For those who work casually and intermittently it can be difficult to establish the minimum period of continuous employment needed to qualify for some employment rights. There are two ways in which casual workers have sought to overcome this problem. The first is to try to establish that there are ongoing commitments to provide and perform work spanning any periods of inactivity; however, this has proven to be difficult in circumstances where there is genuine flexibility on both sides. The second approach is to utilise the statutory rules on continuity of employment which allow gaps between assignments to be bridged in certain circumstances, for example, if there is less than a week between assignments or the break between assignments is down to a “temporary cessation of work”.

The Good Work report recommends that more should be done to make the process of establishing continuity of employment easier and believe the situation could be improved if the length of time an individual can be ‘not working’ but retain their entitlement is increased. This could be achieved by increasing the gap between assignments which can be bridged under the statutory rules. For example, at the moment, a gap of a week is permitted before continuity is broken. The Review team believe this should be increased to a month.

GMB submitted evidence to the report and advocate the abolition of continuous service requirements altogether and provide for full employment rights from day one.”

The review team believe that government should also consider clarifying the situations where legitimate cessations of work for the same employer apply. Should it just be because no work is available, or should it apply to a wider set of situations? In practice this would mean that a casual worker who works one week and then has a gap of up to a month until they next work, would now accrue continuity of employment throughout that period (but only for the time they have worked). It would therefore be easier for them to access rights which require a qualifying period.

Pay reference period

During the review’s discussions with workers and trade unions, they heard a number of examples of people being denied rights indirectly and holiday pay was one that was raised continually. All workers in the UK are entitled to a total of 5.6 weeks of paid annual leave every year. For most, the only issue faced in taking this is finding a sufficiently quiet time in their work schedule to take the leave, however for those who work in more casual arrangements, or have variable hours from week to week, knowing how much they are entitled to be paid for annual leave can be difficult.

The legislation provides a solution. The holiday entitlement of a worker without normal working hours is based on the amount of hours worked over a pay reference period of 12 weeks. However, it is widely acknowledged that this does not work for everyone, especially where work is seasonal or there are significant peaks and troughs in work. For example, an individual may work 50 hours a week during the summer months and then scale back their hours for a month to just 10 hours a week before taking leave. In this situation, the individual would not necessarily get all the holiday pay to which they should have been entitled.

In addition, it was suggested to the review team that some workers – especially true in the case of lower skilled, lower paid agency workers and those on zero hours contracts – either did not know they were entitled to paid annual leave or were afraid to take it. While this may simply be a matter of awareness, bad employers can use this to their advantage. Having a large workforce of people on zero hours contracts who do not take all their annual leave can be worth a significant amount of money to a business.

The report recommends that government should intensify their efforts in communicating who is entitled to holiday pay in the same way as they provide clear messaging every year on the NMW and NLW rates. However, the review team believe the government can go further and in the first instance, the pay reference period should be extended to 52 weeks to take into account the seasonal nature of a great deal of casual and zero hours work.

Individuals should also have greater choice in the way in which they receive paid annual leave. As a general rule, annual leave entitlement equates to 12.07% of hours worked. Individuals should have the choice to be paid for this entitlement in real time – known as “rolled-up” holiday pay which would result in ‘dependent contractors’ receiving a 12.07% premium on their pay. So in the case of someone being paid the NLW of £7.50, their actual remuneration would be £8.41 an hour. Additional safeguards would have to be built in to ensure individuals did not simply work 52 weeks a year as a result, but review team believe giving individuals this kind of choice will suit many working in casual arrangements and in the on-demand economy.