In May 2023, the UK government announced a series of proposed reforms to holiday pay and working time rules, taking advantage of the flexibility afforded by Brexit to reshape EU-derived employment legislation.

The proposals aimed to simplify and modernise regulations that many businesses — particularly in construction — had found complex and burdensome.

The two main areas of focus were:

1. Legalising Rolled-Up Holiday Pay

Under current law, employers must provide paid leave — time off work — rather than simply paying a cash sum in lieu of holidays.
However, the practice of "rolled-up holiday pay" — where an employer adds a percentage (usually 12.07%) on top of a worker’s wages instead of granting paid time off — had been widespread among casual, seasonal, and irregular workers.

Following the 2018 Brazel case, courts cracked down on rolled-up pay, making compliance for irregular workers more difficult and increasing the risk of underpayment claims.

The government proposed to formally legalise rolled-up holiday pay for workers with irregular or part-year working patterns.
Employers would be allowed, by law, to compensate workers via an enhanced hourly rate instead of managing holiday entitlement separately.

2. Merging Statutory Leave Entitlements

Currently, UK law distinguishes between:

• 4 weeks of annual leave under the EU Working Time Directive
• An additional 1.6 weeks granted by UK legislation
   

Different rules apply to each category — for example, regarding holiday pay calculation and carry-over rights.

The government proposed merging these into a single entitlement of 5.6 weeks — simplifying payroll calculations and reducing administrative errors.

3. Removal of Working Time Record Requirements

A further change proposed removing the strict obligation for employers to record daily working hours for every worker.
Instead, businesses would simply need to ensure that maximum working hours and minimum rest periods were respected.

Why This Matters to Construction Clients

Construction businesses, particularly those using temporary, casual, or project-based workers, stand to benefit significantly from these proposed reforms.

Key impacts include:

• Greater flexibility: Rolled-up holiday pay would simplify managing site operatives, subcontractors, and short-term labour without complex accrual systems.
• Lower compliance risk: Legalising common payroll practices would reduce the risk of costly holiday pay claims.
• Streamlined processes: Merging holiday entitlements would eliminate confusing distinctions and ease contract drafting and payroll management.
• Reduced paperwork: Loosening working time record requirements would lessen the administrative burden on sites managing shifting teams and project timetables.
   

However, businesses must remember that these were proposals as of mid-2023.
Final legislation and implementation timelines will determine when and how the new rules take effect.

Practical steps:

• Track legislative developments carefully to adopt rolled-up holiday pay practices lawfully when permitted
• Review workforce contracts to reflect merged leave entitlements once changes are enacted
• Prepare to adjust payroll systems to accommodate simplified holiday calculations