New consultation on employment law changes: what you need to know

On 10 May, the government released a Policy paper that proposed some new law reforms. They also launched a consultation on some of these employment law reforms, which closes on 7 July.

Our Professional Support Lawyers have got their heads together to explain the three most significant proposals for employers like you (remember, these are just proposals at this stage).

Holiday pay

Probably the most relevant of the proposed changes are the proposals on the tricky topic of holiday pay.  As all workers/employees are entitled to a minimum of 5.6 weeks’ holiday a year, you’re probably pretty familiar with the basics of holiday pay, but that doesn’t stop it from becoming confusing at times. The proposals are about amending the holiday pay laws, specifically when it comes to rolled-up holiday pay and what sums should be included in a week’s holiday pay.

Rolled-up holiday pay

Rolled-up holiday pay is where, alongside their wages, the worker also receives holiday pay for every hour they work – usually paid at an additional 12.07% of the hourly rate and specifically badged as ‘holiday pay’. That means when the worker takes time off it counts as unpaid as they’ve already received the holiday pay.

The current legal position is that rolled-up holiday is illegal because the worker should be getting paid at the time that they take the holiday.  Also, if the worker is on variable hours, their holiday pay should be the 52-week average calculated from the time the holiday is taken.

There’s also concern that if someone has already had their holiday pay they won’t want to have unpaid time off and so won’t take their annual leave, making burnout more likely.  However, it’s been accepted that wages specifically labelled ‘holiday pay’ in a rolled-up scheme can be offset against any holiday pay that an employee later claims they’re owed.

The consultation is now looking at the proposal to introduce rolled-up holiday pay as a legal method of paying holiday pay.

A week’s holiday pay

Right now, if a worker/employee is on variable hours or receives different rates of pay for their normal hours, then their week’s holiday pay is calculated as an average of everything they were paid in the last 52 weeks (calculated from the date the holiday is taken). The picture gets more complicated when a worker is on fixed hours each week with a standard ‘basic’ wage but also receives other payments like overtime or commission, etc.

Because of European law, the UK has ended up with a complex picture where the four weeks’ holiday workers are entitled to under EU law needs to be paid with certain extra payments included. However, technically you’re only allowed to pay the remaining 1.6 weeks at the basic wage.

Some of the key extra payments that need to be included in this four weeks’ holiday are below. The idea behind this is that the worker’s holiday pay should reflect their usual rate of pay when they’re in work.  These additional payments include:

  • ‘Normal’ overtime, i.e., overtime that is regularly worked, rather than as a one-off.
  • An average of commission earned.
  • Allowances that would normally receive and are linked to performing their work tasks.

The government’s consultation includes a proposal to get rid of the distinction between the four weeks and the 1.6 weeks holiday pay and instead to view holiday as one pot of statutory annual leave, and setting out a new minimum rate of pay for the whole holiday.


The Transfer of Undertakings (Protection of Employment) Regulations (TUPE) apply where a business is transferred from one owner to another. Part of the TUPE requirements is that the current owner informs and usually consults the affected employees about the proposed transfer before it happens.

Right now, this information/consultation process usually has to be held with representatives of the employees and so, if no reps are already in place (for example, Trade Union reps), then the current employer has to arrange an election. It’s only if the entire business has less than 10 employees that the employer is allowed to inform/consult the employees directly.

However, the consultation is proposing that this exemption should be widened so that if the whole business has less than 50 employees and less than 10 employees are affected by the proposed transfer, then the current employer will be allowed to inform/consult with the employees directly.

Non-compete clauses

A non-compete clause is a contractual clause agreed between the employer and the employee in which the employee agrees that for a certain period after the end of their employment, they won’t work within a certain area and/or for certain competitors/sectors. The Policy paper claims that these clauses can stop workers from looking for better roles and can limit businesses being able to compete and innovate.

So, the government is looking to limit non-compete clauses to those lasting for no more than three months.

However, you’ll still be able to use non-solicitation clauses (i.e., not encouraging a customer or employee to leave the employer), confidentiality clauses and garden leave notice clauses.

The Policy paper says that the government will bring in this reform ‘when Parliamentary time allows’.

We’ll keep you updated!

We’ll let you know as soon as we hear more on any of these topics! We don’t recommend calling your 24/7 HR advice line about any of these issues yet because we don’t have any more detail then we’ve set out above and these are all still “proposed” changes, but if you would like to chat to someone, then call 0345 844 4848.

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