New laws on holiday entitlement may lead to additional costs for many employers

21 June 2007

Many employers will come under increased costs pressure as a result of new legislation to come into force on 1 October 2007. At present all full time workers are entitled by law to a minimum of 20 days of paid time off per year. This is set to increase to 24 days from 1 October 2007 and to 28 days on 1 April 2009. Lawyers at Bird & Bird warn that employers will need to adjust their holiday policies to comply with the new legislation, and that many employers will incur increased staff costs as a result of the changes.

The Working Time (Amendment) Regulations 2007 have just been published in draft, and are due to come into force on 1 October 2007. The new rights will benefit not only employees but wider categories of workers including agency temps and many freelancers. The 8 bank holidays in the UK are currently included in the 20 days of statutory minimum holiday that workers are entitled to under the Working Time Regulations 1998. The new legislation will mean that all workers will have a minimum of 20 days of paid holiday in addition to the 8 bank holidays. This is effectively a 40% increase in their holiday entitlement and wage costs for some employers will increase by over 3% as a result.

Commenting, Bird & Bird employment lawyer Elizabeth Lang said:

“This change is going to have a real financial effect on many employers. This may particularly be the case in sectors which rely heavily on agency workers and other seasonal and hourly paid workers, who are commonly only given the statutory minimum paid holiday entitlement of 20 days. Even employers who currently offer more than 28 days of paid holiday to their workers will have to make adjustments to comply with the new regulations governing the administration of holiday. There will be less freedom to allow employees to carry holiday over from one year to another and to make payments in lieu of holiday.”

The changes will be introduced in 2 stages, on 1 October 2007 and 1 April 2009 in order to give employers time to adjust to the change. Under the new regulations some or all of the additional holiday may be carried forward to the next holiday year. As from 1 April 2009 no payment in lieu of the 28 day statutory holiday entitlement will be permitted except upon the termination of employment.

Part time workers will be entitled to the extra holidays on a pro-rata basis. The increases from October 2007 and April 2009 will be calculated proportionally depending on when a worker's holiday year begins. If an employer's holiday year begins in January, workers will be entitled to 1 additional day in 2007, 4 in 2008, 7 in 2009 and 8 from 2010 onwards. The DTI is going to make an on-line calculator available.

Many employment contracts already provide workers with at least 28 days of paid holiday when taking into account bank holidays. Employers who offer at least this amount of leave before 1 October 2007 will not be bound by the proposed changes as long as they comply with certain restrictions on paying in lieu of unused holiday and the carrying forward of holiday.

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Notes to Editors

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