Draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023
(Limited Text - Ministerial Extracts only)
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The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
I beg to move,
That the Committee has considered the draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023.
It is a pleasure to speak with you in the Chair, Mr Efford.
The Government have set out their ambition for the UK to become the best regulated economy in the world, as in the “Smarter regulation to grow the economy” paper published in May 2023. The central regulatory focus of this Government is on how we can improve regulation across the board to reduce burdens, push down the cost of living and drive economic growth.
By ensuring that we have the best regulated economy, we can develop an environment conducive to innovation and business confidence. That will ensure that we support the UK economy to grow and to enable prosperity across society. That is particularly important following Brexit, with significant quantities of out-of-date, unworkable and unnecessary EU laws still on our statute book. On 12 May 2023, the Government launched a consultation on three areas that could benefit from reform and where we could remove unnecessary bureaucracy: record-keeping requirements under the working time regulations; simplifying annual leave and holiday pay calculations in the working time regulations; and consulting and consultation requirements under TUPE, or the Transfer of Undertakings (Protection of Employment) Regulations 1981 and 2006.
The proposals seek not to remove rights—the UK has one of the best workers’ rights records in the world—but instead to remove unnecessary bureaucracy in how those rights operate, allowing business to benefit from the additional freedoms that we have through Brexit. By backing British business, this draft statutory instrument supports one of the five areas outlined by the Prime Minister in his speech on 22 November setting out the Government’s strategy to grow the economy.
The working time regulations are derived from the EU working time directive. They create various entitlements for workers, including minimum rest breaks and maximum working hours, as well as an entitlement to paid annual leave. Those regulations provide important protections to workers, but they can also place disproportionate burdens on business in relation to recording working hours and other administrative requirements. That is why we consulted on removing the effects of the 2019 judgment of the Court of Justice of the European Union, which held that employers must have an objective, reliable and accessible system enabling the duration of the time worked each day by each worker to be measured.
Our proposed regulations make it clear that employers will not be required to keep burdensome and dispro-portionate records of the daily working hours of each worker. Instead, employers will need to keep adequate records and demonstrate compliance with their working time obligations. That clarification could help to save businesses around £1 billion a year without changing workers’ rights.
The Government recognise the importance of consultation with employees and employee representatives on TUPE transfers. However, employers can find certain aspects of the consultation process burdensome. Before a TUPE transfer, the current employer and the new employer need to consult the affected workforce’s existing representatives, or arrange elections for employees to elect new representatives if they are not already in place before the transfer. We want to simplify the process for businesses where worker representatives are not already in place.
Currently, microbusinesses have the flexibility to consult directly with workers rather than hold elections. This draft SI will extend that flexibility to small businesses—those with fewer than 50 employees—undertaking a transfer of any size, and to businesses of all sizes involved in transfers of fewer than 10 employees if no existing employee representatives are in place. That means they will not be required to undertake the time-consuming process of arranging elections for new employee representatives.
The draft regulations also introduce reforms to holiday entitlement and pay. Working patterns have changed significantly over the past decade, and the existing legislation governing holiday pay and entitlement does not fully align with current working practices. These regulations simplify and address concerns about the calculation of holiday entitlement for employers, and make entitlement clearer for all irregular hours and part-year workers. In addition, the reforms could provide significant savings to businesses by reducing the red tape and complexity of calculating holiday pay and entitlement. We have defined irregular hours and part-year workers in these regulations to ensure the terms are clear to employers and the workers to whom some of these reforms apply.
The regulations respond to the Supreme Court judgment in the 2022 case Harpur Trust v. Brazel, which accorded part-year workers a larger holiday entitlement than part-time workers who work the same total number of hours across the year. To address that disparity, the regulations introduce a simplified method to calculate holiday entitlement for irregular hours and part-year workers. Entitlement will be calculated as 12.07% of hours worked in a pay period in the first year of employment and beyond. That accrual method was widely used before the Harpur Trust judgment and better reflects what workers have actually worked in the current leave year. The introduction of that accrual method could save businesses up to £150 million a year over the long term. The regulations also introduce a method to work out how much leave an irregular hours or part-year worker has accrued when they take maternity or family-related leave or sick leave to ensure that those workers are not unfairly disadvantaged when on leave.
We are also legislating to allow the introduction of rolled up holiday pay for irregular hours and part-year workers. Rolled up holiday pay is where an employer includes an additional amount with every payslip to cover a worker’s holiday pay, as opposed to paying holiday pay when a worker takes annual leave. We consulted on introducing rolled up holiday pay for all workers, but after taking into account stakeholder feedback, we decided to introduce it as an additional method of calculating holiday pay for irregular hours and part-year workers only.
Employers do not have to use rolled up holiday pay for those workers if it does not suit their businesses, and can instead continue to use the 52-week reference period to calculate holiday pay. Employers who use rolled up holiday pay will calculate it based on the worker’s total earnings in a pay period. That will avoid the complexity of applying the rolled up holiday calculation to different rates of holiday pay. We consulted on a further reform—the introduction of a single annual leave entitlement with a single rate of pay—but we will not be introducing it as part of this package.
The regulations maintain the two distinct pots of annual leave and the two existing rates of holiday pay so that workers continue to receive four weeks at the normal rate of pay and 1.6 weeks at the basic rate. That is due to feedback received through stakeholder engagement. We will assess the take-up of rolled up holiday pay and consider more fundamental reforms to the rate of holiday pay in the future. We are supporting employers by providing clarity in regulations on which types of payments are included when calculating the normal rate of pay.
In addition to the three reforms mentioned above, this statutory instrument mitigates the risk that the removal of interpretive effects on employment law could lead to a reduction in workers’ rights by restating the following three principles: the right to carry over annual leave where an employee has been unable to take it due to being on maternity or other family-related leave or sick leave; the right to carry over annual leave where the employer has failed to inform the worker of their right to paid annual leave or has not enabled them to take it; and the rate of pay for annual leave accrued under regulation 13 of the working time regulations.
The SI also revokes the European Co-operative Society (Involvement of Employees) Regulations 2006 and the Working Time (Coronavirus) (Amendment) Regulations 2020. The main European co-operative society regulations were repealed in 2021, and the involvement of employees regulations therefore no longer have any effect in practice. The covid regulations were introduced as temporary legislation intended to prevent workers from losing annual leave entitlement if they are unable to take it due to the effects of covid. Therefore, those regulations are no longer needed.
The scope of the SI is limited to Great Britain other than the revocation of the European Co-operative Society (Involvement of Employees) Regulations 2006, which extends to Northern Ireland. Employment law in Northern Ireland is a transferred matter. We are confident that the changes comply with our international legal obligations, including those in the EU-UK trade and co-operation agreement.
Under this Government, we have seen employment reach near-record highs. The number of payroll employees for September 2023 was 30.2 million—370,000 higher than this time last year and 1.2 million higher than before the pandemic. Through Brexit, we regained the ability to regulate autonomously, and we are using the new freedoms to ensure that our regulations are tailored to the needs of the UK economy.
In addition to providing cost and admin savings for businesses, the reforms aim to provide clarity on complex holiday pay legislation so that it is simpler for employers to follow and comply with. Approximately 1.5 million workers will be affected by the holiday pay reforms. By simplifying the legislation, workers will receive the holiday entitlement and holiday pay to which they are entitled. The restatement of the three principles that I mentioned will retain existing rights. I commend the regulations to the Committee.
Kevin Hollinrake
I thank hon. Members for their valuable contributions.
We have been clear throughout the Brexit process that we have no intention of abandoning our strong record on workers’ rights, having raised domestic standards over recent years to make them some of the highest in the world. The shadow minister always talks about the impact on workers—today, the impact on irregular and part-year workers. In our debates last week and today, I noticed that Opposition Members never once mentioned the rights of businesses or protections for businesses. It is always workers. Does the hon. Member for Ellesmere Port and Neston not understand that there is a balance to be struck between the rights of workers and the rights of businesses? I never hear Members of the new “party of business” taking the needs of business into account. Why does that never feature in any of his remarks?
Justin Madders
We do support business, but every time this Government bring forward legislation, it is about attacking workers. Is it not the same today? Is not taking £250 million out of workers’ pockets an attack on workers?
Kevin Hollinrake
I do not accept that. Again, that speaks to the fact that the only organisations quoted in last week’s debate and today’s are the unions, such as the BMA. But I think what the if I can deal with his point, if I may, I think the
On the hon. Gentleman’s point about part-year workers, there is no doubt that there is a £150 million saving for businesses, but he also talked about parity, and this is about parity. It is about two workers working in slightly different patterns but working the same hours every year having the equal amounts of holiday pay. That is what this is. Many people would consider the judgment that led to a difference to be unfair, a perverse outcome. What we’re legislating for here is fairness across the board, whether people work a part-year or a full year.
Stella Creasy
The Minister is being a little bit uncharitable, given that a number of us have raised the impact on employers of the complexity of the scheme. What we recognise is that not every employer is a good employer, so both employees and employers are at risk from bad employment practices. It does not have to be a battle. I am troubled by an employment Minister who seems to think we have to pick a side. Some of us want best behaviour on both sides.
Kevin Hollinrake
It is quite the opposite. We do not pick a side; we try to help both sides and to achieve a balance. That is where we are. I never hear about that balance between both sides from the Opposition; all I hear is about the impact on workers and on unions. In the debate last week, not once did I hear once about the 4 million working days lost to strikes, the 2 million operations cancelled, the hospital appointments cancelled, or the £3.5 billion impact on the hospitality sector.
Justin Madders
Was the Minister not listening when I when I talked about how having a different holiday pay calculation rate for the four weeks and the extra 1.6 was actually going to create more burden on businesses?
Kevin Hollinrake
The hon. Gentleman raises an interesting point. He is talking about a single pot of annual leave. We believe in maintaining two pots. Presumably he is talking about the four weeks at normal pay currently and 1.6 weeks at basic pay, and about raising the 1.6 weeks of basic pay to the level of normal pay, which actually costs employers more. How much more is he suggesting employers should pay to regularise that position?
Justin Madders
Can the Minister give us a figure for how much more this would be?
Kevin Hollinrake
It is incumbent on the hon. Gentleman to do that. We are maintaining the status quo. He wants to make that change. What is the figure for what he describes as a simpler position? Does he not agree that that would be a cost on business? It is simple as that, yet he throws that out as if it were no matter for employers, who would have to deal with the extra cost.
Justin Madders
The Minister pointed out that, apparently, this will save businesses £1.2 billion. I don’t know if that is more or less than the change would cost, but I would have thought that it is something that could have been looked at, yet it does not appear to have been considered at all.
Kevin Hollinrake
I think we are back to the same place. As the hon. Gentleman knows, the £1.2 billion is largely the administrative costs of maintaining a recording position. What he wants to move to would cost a cost employers £1 billion. That is an interesting point.
Raising concerns that I think are scaremongering, The hon. Gentleman said that in future employers would be able to keep records “if they like”. That is not the case, and he knows that. Why would he say that kind of thing? Employers are required to make and keep adequate records. He knows that from the legislation. He also raised some concerns about change expressed by one of the unions, but it is not a change, because these measures have not yet been implemented in the UK economy. Again, he raises those concerns that somehow this is detrimental to health workers, but that is not the case. Does he accept that?
In terms of the points on rolled up holiday pay raised by the hon. Gentleman and the hon. Member for Walthamstow, the Government believe the existing safeguards are proportionate in addressing current concerns about impacts on workers from rolled up holiday pay. Employers are already required to provide an opportunity for workers to take leave, and we have heard through our stakeholder engagement that this is taking place. We also have safeguards in relation to the 48-hour working week, where a worker cannot work more than 48 hours a week unless they choose to opt out.
In terms of consultations, employers will have to tell their workers if they intend to start using rolled up holiday pay, and this payment will have to be clearly marked on the worker’s payslip. If employers need to make changes to terms and conditions, they must seek to reach an agreement with their workers or their representatives.
I think I have covered most of the points raised—I am sure I will be told if I have not. Our standards and our workers’ rights were never dependent on membership of the EU—indeed, the UK provides stronger protections for workers than are required by EU law. For example, we have one of the highest minimum wages in Europe, and on 21 November, the Government announced that we will increase the national living wage for workers aged 21 and over by 9.8% to £11.44 an hour. That will certainly help the hon. Lady’s constituents, some of whom may be low paid, as she said.
Our regulatory system is recognised globally, but we want to raise the bar even higher and deliver on our ambition to become the best regulated economy in the world, as we embrace our newfound freedoms outside the EU. By doing so, entrepreneurial businesses will have more opportunity to innovate, experiment and create jobs, and importantly, workers’ rights will be protected. This will cement our position as a world-class place to work and to grow a business.
Stella Creasy
I asked a specific question about the impact of rolled up holiday pay on women who take maternity leave. The Minister confirmed in his statement that the protection that holiday pay should not be calculated during maternity leave was there, but he did not clarify what this would mean if a woman came back to a role, for example, and was then told she was on rolled up holiday pay.
Kevin Hollinrake
I am happy to address that point, too. The hon. Lady talked about people being notified about their leave entitlement, and I did refer to that in my response. Indeed, employers are required to provide an opportunity for workers to take leave in any circumstance, and we have heard through our stakeholder engagement this is taking place. If there are specific points she wants to raise, I am happy to respond in writing.
Stella Creasy
A woman on maternity leave does not accrue holiday pay because she is on maternity leave, so her holiday pay, if it is then being transferred into rolled up pay, could mean that she is at a disadvantage because she was on maternity leave; there is nothing to calculate her entitlement. I am sure that the Minister thought about this. I am sure that he thought about the protections for women on maternity leave. What would a woman’s rights be if she was then moved to rolled up holiday pay?
Kevin Hollinrake
I will not clarify the position now, but I am happy to write to the hon. Lady. I commend the regulations to the Committee.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023.