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This article was first published in the June 2019 UK edition of Accounting and Business magazine.

Just before last Christmas the government published its response to the Good Work plan it had commissioned from Matthew Taylor, CEO of social change organisation RSA. Taylor had been charged with looking at the UK labour market from the perspective of the employee, considering whether the current suite of employment rights was fit for the 21st century.

Not traditional Conservative territory maybe, but at the time that the report was commissioned the prime minister wanted to reassure voters that leaving the EU would not lead to a watering down of workers’ rights. It’s hard to argue about the appropriateness of Taylor’s recommendations, but the administrative burden and cost to UK employers, and the agents who serve them, need to be understood and planned for. Some proposals have already been legislated for and will come into effect in April 2020, so these are very real challenges to address.

Holiday pay

From April 2020, employees on variable pay must have holiday pay calculated on the basis of the 52 weeks before the holiday is taken, rather than the 12 preceding weeks as now. This will apply only in Great Britain and not in Northern Ireland (where employment rights are devolved). It also adds complexity for recruitment agencies, who may be asked to adopt differing holiday pay calculations by clients depending on where the employee is based.

Employees with variable pay are not just hourly paid casual or zero-hours staff. The proposals include, as is already the case with the current 12-week count-back, workers who have any sort of variation to their normal week’s pay on a regular basis – for example, commission, bonuses and even voluntary overtime worked at least once a month.

The inclusion of ‘regular’ voluntary overtime in holiday pay was established in the 2018 case of Brettle and others v Dudley Council. However, that ruling may be further clarified, as Flowers and others v East of England Ambulance Trust will be the first holiday pay case to be heard in the Court of Appeal in May 2019 (the verdict was due after AB went to press), which also centres around voluntary overtime.

Although little detail has been given about how the holiday calculation will work in payroll software (if at all), it makes sense for employers to start recording employee hours worked each week as soon as possible in order to start building up to a 52-week record, as the rules require employers to count back as far as 104 weeks if gaps in an employee’s work pattern mean there is no straight run of 52 weeks worked prior to the holiday period.

For example, if the employee were to go on holiday in April 2020 and had not worked every week in the prior year, the employer would need to go back as far as April 2018 to find as many weeks as possible if the total count were under 52. If, say, only 39 weeks in that 104-week period had been worked, then total earnings would be divided by 39 to establish the holiday pay required.

Continuous service

The 104-week run-on interacts with another change that comes into effect in April 2020: continuous service. Currently, a one-week work gap does not constitute a break in continuous service; from next April, gaps of up to four weeks will not count as breaching a period of continuous service. In addition, other service-related entitlements such as statutory maternity pay, redundancy and unfair dismissal protection will be extended to more workers.  

After 26 weeks of employment, casual or zero-hours workers will also be able to request a permanent number of hours or days. It’s only a right to request, though, and employers will have three months to make their decision.

To avoid agency workers getting the same pay and conditions as permanent employees after 12 weeks in post, recruitment agencies currently use the Swedish derogation. This allows agency workers to opt out of equal pay entitlements in exchange for compensatory payment between assignments. The derogation will be outlawed from April 2020. 

Enhanced T&Cs  

All workers, not just employees, will be entitled to receive enhanced terms and conditions from their first day, rather than within two months of starting, as currently. This will ensure both parties are clear about the main contractual terms from the outset of the relationship, but further details will need to be included, such as family leave policies, the duration of any probationary period, and information about entitlement to any benefits.

Enforcement

Currently, the enforcement of employment rights is split between a number of agencies such as HMRC, which polices the national minimum wage, and the Gangmasters and Labour Abuse Authority. Some rights such as holiday pay are not enforced by any agency, so abuses have to be pursued by employees through tribunals.

The government is proposing a comprehensive state-led enforcement agency to cover all areas of employment rights and holiday pay. Agents may be hoping that HMRC doesn’t land the role given its aggressive stance on national minimum wage compliance.

Kate Upcraft is a payroll consultant.