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Staff and SMEs stuck in Limbo Land over annual leave changes

Employers (and employees) will face further uncertainty from this week as the window for submissions for the government’s consultation on annual leave shuts on March 9th.

That’s the opinion of HR expert Donna Obstfeld, a twice published author and founder of HR firm DOHR.

‘This is becoming a real challenge for SME owners and HR managers but for now, I urge them to work with the current laws rather than second guessing the effect of future tweaks,’ explains Obstfeld.

’It is frustrating for everyone. Just when it appeared there was absolute clarity about how much annual leave a part year worker could take and what they should be paid for it, the Government launched a consultation on further changes.

‘Don’t get me wrong, this is absolutely needed, but it means that there is still a lack of clarity over annual leave for anyone who is permanently employed, but does not work a full year.’

The new rules came in last summer, following the Harper Trust vs Brazel case, which effectively ended the percentage approach to calculating earnings and from there, annual leave.

Obstfeld continues;

‘At the time, I desperately hoped that I had misunderstood the ruling (I hadn’t). I ran an experiment using my daughter, Dania, who last year only worked in the summer and only full time.

’Under the new ruling, rather than prorating her earnings and applying that to her holiday, she was entitled to the full 5.6 weeks of holiday at 35 hours a week as that was what she had worked in the three months she was working.

‘Dania was of course delighted by this news as in effect, by working full time for 3 months, she could accrue more annual leave than a part time colleague who worked the same hours over the full year!’

In an attempt to rectify the inconsistency which now exists, the Government launched a consultation on 12th January 2023 asking employers, employees, representatives and temporary staff agencies to respond before 9th March 2023.

‘We are now in Limbo Land,’ continues Obstfeld.

‘It needs looking at urgently and for now, it is safe to assume that changes are coming and that the current method of calculation is fundamentally flawed. However, employers MUST work with the law as it stands and comply with the current legislation.’

Due to the increasing complexity of the ruling, Donna has developed a toolkit to assist employers with these calculations.

‘We know that this toolkit will expire when the law is changed, but it is currently the only accurate mechanism for calculating annual leave pay and entitlement for part year employees’ acknowledged Donna.

’We have already seen some people put in claims for holiday pay based on the difference between the original percentage method and the current average earnings method but the current changes may mean that employers will be overpaying employees and will be entitled to reclaim money from staff.

‘At the moment, we have no idea what the timescales might be following the conclusion of the consultation. Not only do we not know what the new rules will be, but we don’t know when they will be implemented or whether there will be a transition period.

‘Until we have clarification, it is business as usual. Keep on using the methodology which we know is flawed, because that is the only way you are legally compliant.’