‘Too slow’ government consults on holiday pay entitlement for irregular hour workers

A “mess” that the government got into because of its own complex laws on holiday pay entitlement -- which the courts then made more complicated -- could finally be untangled.

That’s the consensus hope of experts reflecting on a new BEIS consultation, on how holiday entitlement should be calculated for part-year, irregular hour, and multi-contract workers.

While it wants to hear from agency staff, contractors, and invariably umbrella companies on how the entitlement is totted up, the consultation makes some proposals of its own.

'Keen to address this disparity'

Broadly, it wants to reverse the stance in Harper V Brazel, where it was ruled the entitlement should not be pro-rated whereby it is reflective of the work-amount that workers annually do.

“As a result of this judgment, part-year workers are now entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year.

“The government is keen to address this disparity,” continues the consultation, “[so] holiday pay and entitlement received by workers is proportionate to the time they spend working.”

'Govt proposals would ensure consistency'

Talk from officials of ‘addressing a disparity’ usually irks contractors as similar wording has been used to justify IR35, but most contracting experts are glad that a nettle is being grasped.

PayePass said the proposals, which include the introduction of a fixed holiday entitlement reference period for affected workers, “would ensure consistency across the board for all”.

IWORK said the proposals would simplify holiday pay for employers (including umbrella companies), and make it easier for workers to work out their entitlement and claim it.

The FCSA welcomed the January 12th consultation, saying it would respond by the deadline of March 9th 2023 “with the ultimate aim of [sic] clarify and simplifying this complex issue.”

'IR35 off-payroll rules pushed swathes towards holiday pay entitlement difficulties'

But government talking of a ‘disparity’ while bemoaning “complex employment legislation” makes IPSE think of IR35 -- even if the consultation sees fit not to mention the rule once.  

“Rules around holiday pay are too confusing and are open to abuse by employers who seek to profit from individuals not clearly understanding their entitlement and how to claim it.

“But the problem has been brought into sharp focus in recent years as the [government’s own] IR35 rules have pushed swathes of contractors into umbrella companies, where many have encountered difficulties,” IPSE’s Andy Chamberlain told ContractorUK. 

'Far too slow government'

The Association of Independent Professionals and the Self-Employed’s policy head, Mr Chamberlain accused the government of being “far too slow” to act on holiday pay entitlement ambiguity.

Similarly backing the consultation, but also believing much of the contents of the 31-page document flags up problems of the government’s own making is Robert Sharp.

“A consultation regarding holiday pay…is much-needed [but] I don't think I have ever seen [any policy area] in such a mess,” says Mr Sharp, of Orca Pay Group.

“The challenges that these [complexities around holiday entitlement] present every day, to our industry, the businesses in them and most importantly to contractors [are something that ministers have until now been totally detached from].”

'Workers with complex contractual arrangements'

In the consultation, ‘Calculating holiday entitlement for part-year and irregular hours workers,’ the government says it wants to understand the implications of Harper V Brazel on different sectors, “including agency workers who have complex contractual arrangements.”

The government also says in the consultation that it wants to ensure “any changes we consider do not have any adverse impacts on other parts of the legislation.”

ReLegal Consulting boss Rebecca Seeley Harris points out that ministers have answers to a fair few of their questions already (22 in total are posed; seven on holiday pay entitlement).

In fact, on the technically unlawful practice of ‘rolled-up’ holiday pay, Sir Matthew Taylor in his Taylor Review has already indicated it should be made legal, observed Ms Seeley Harris, a lawyer.

'Govt should look at Smith v Pimlico Plumbers'

She added: “The government should look at the implications of the ruling in Smith v Pimlico Plumbers [not least because there] they even have the benefit of the addendum to that case where counsel drafted their suggested amendments to Regulation 13 of the Working Time Regulations.

“This stated that leave entitlement would carry forward, unless the employer could show that they specifically and transparently gave the worker the opportunity to take paid annual leave.”

Another lawyer, albeit one specialising in recruitment, has advised on the case at the heart of the government’s stated reason to now consult on what holiday entitlement ought to look like for irregular hour workers.

'Repeat engagements under an employment contract'

“Anyone concerned about Harper Trust v Brazel should avoid using an employment contract to engage an individual,” the lawyer, Adrian Marlowe of Lawspeed has advised.

Speaking also as the chair of the Association of Recruitment Consultancies, Mr Marlowe explained: “The expectation of repeat engagements under an employment contract is likely to result in the accrual of holiday entitlement and thus pay, even if there is a termination of the contract and instigation of a new contract for each new assignment.

“This admin, and risk, would not arise where the contract from the outset is not one of employment. So a properly drafted framework contract for services is [currently] the solution for agencies and hirers taking on the same worker, from time-to-time.”

'Holiday pay stolen away'

A few advisers to contractors imply the government is only getting involved on holiday pay entitlement because a way to address abuses of it – the Single Enforcement Body – has been shelved.

“The decision to shelve the Single Enforcement Body late last year was a blow to those of us who have lobbied for tighter regulation of the sector,” says IPSE’s Mr Chamberlain.

“This consultation is a step in the right direction – [we] will certainly be responding – but what’s really needed is a clear signal that the government will not allow holiday pay to be effectively stolen away from the individuals it is intended for.” 

'Hot potato'

At IWORK, Ms Kermode is surprised that rolled-up holiday pay isn’t front and centre of the consultation, assuming not letting holiday pay be stolen away from workers is indeed an aim of the Department for Business, Energy and Industrial Strategy (BEIS).

“I’m surprised the consultation doesn’t explore the issue of rolled-up holiday pay, which is when a temp receives holiday pay as part of their wages rather than being paid when they take time off.

“It’s a hot potato, though,” Kermode reasoned. “It contradicts the purpose of Working Time Regulations which is being paid while taking a break. That said, rolled-up holiday pay does ensure that temps receive what’s legally theirs.”

'Govt has wholly failed to address many issues plaguing temporary workforce'

By not putting into the mix of proposals something that could genuinely help temporary workers, the government won’t be surprising Mr Dures, PayePass's boss.

A qualified solicitor, he said that the government and “certain departments” have “wholly failed to address the many and very serious issues that plague the temporary workforce”.

Orca’s Mr Sharp is likewise not optimistic, despite overall backing the consultation on its merits.

'Just another mess, in what's already been a circus'

“Unfortunately this [could be] just another mess that government are getting into,” he warned.

“There was clear guidance given to [ministers] by Matthew Taylor that was ready-made and should already have been implemented. [But] then in their infinite wisdom, they shelved the SEB, [even] after a year when they didn't need any more evidence of just how badly the umbrella industry is in need of regulation.”

Orca Pay Group’s CEO, Mr Sharp said that following reported and alleged “horrors” by umbrellas, the government then gave the contractor sector “the IR35 repeal that was then repealed.”

Sounding aware that the U-turn simply drove many contractors straight back to umbrellas, where holiday pay is just one of many unregulated activities, he summed up: “It is just a circus really. But nonetheless let’s see if they can get this [one issue] right.”

'All contractor umbrella companies must stand up and have their say'

Trying to put the past in the past, Clarity Umbrella is hopeful that something good will come out of the consultation but it says all umbrellas, even the dispirited ones, must respond to the consultation.

“Anything which can start to provide guidance for employers is going to be good news, however let's hope that umbrella companies actually stand up and have their say,” Clarity’s managing director Lucy Smith told ContractorUK.

“With a lack of previous earnings data, it becomes nigh on impossible for umbrella companies to calculate holiday for those more ad-hoc or part year workers, whereas the previous percentage allowed for a workable solution. I think it is important that every umbrella company gets involved into the consultation to try and push for a workable solution for the contracting market.”