An extended reference period as a tool for more flexible planning of working time. When can it be used and what mistakes need to be avoided?
Employers and employees both often desire flexibility in their employment relations. However, the interests of the parties to an employment contract are not always the same.
In fact, employers seek flexibility which they understand as being able to adapt the terms and conditions of work, including working time, to:
- changing business needs, as well as
- circumstances that are frequently difficult to anticipate and over which employers have no control (like the corona virus pandemic, at the very least)
while at the same time reducing employment costs.
Meanwhile, employees increasingly expect their employers to allow them to decide for themselves where and when they will work, while at the same time fully respecting employee rights (including working time norms and the right to rest). This trend is particularly evident among non-manufacturing workers, including highly specialised professionals.
The Labour Code provides a large number of solutions that allow flexibility in arranging employee working time. One of these is the extended reference period. It is particularly attractive for employers, who often see it as a means of reducing costs, particularly those associated with employee overtime work. However, practice shows that an extended reference period is not always cost-effective.
Reference period – essence and functions
A reference period is, however, commonly defined as the interval of time during which the employer must reconcile an employee’s working time with the norms set in labour legislation. In practice, a reference period is most often taken to be one month or a multiple thereof. Nonetheless, there is nothing to prevent a reference period being one week or its multiple.
In accordance with Article 129 § 1 of the Labour Code, under a basic working time system a reference period may not, in principle, exceed four months. On the other hand, in a balanced working time system the basic reference period is one month (Article 135 § 1 of the Labour Code), although, in particularly justified cases, it may be extended, but by no more than three months, and if the work is seasonal or weather dependent, by even up to four months.
The amendment of 23 August 2013 to the Labour Code introduced the possibility of extending the reference period in each working time system to up to 12 months. The introduction of the extended reference period option was the legislature’s response to the needs of employers, especially those whose demand for work is variable and seasonally dependent.
It is worth remembering that reference periods do not have to be the same for all employees. It is possible to vary reference periods for different professional groups, depending on the organisational needs of the workplace. For example, office and administrative department employees do not need the same reference period as employees in manufacturing.
Extended reference period – benefits
The possibility of extending reference periods brings many benefits. An extended reference period gives the employer more flexibility in balancing working hours. By adapting a reference period to the needs of the workplace, overtime pay may be avoided during a season when the level of work is greater by balancing it out with adequate rest periods during periods of decreased workload.
An extended reference period means more time for: reconciling weekly working time norms, because pursuant to Article 129 § 1 of the Labour Code, an employee’s standard working time may not exceed an average of 40 hours in an average five-day working week in the adopted reference period (Article 129),
- reconciling overtime hours, because pursuant to Article 131 § 1 of the Labour Code, weekly working time including overtime hours may not exceed an average of 48 hours in the settlement period
- granting on an employer’s initiative time off to the employee in exchange for overtime work (Article 1512 § 2 of the Labour Code),
- granting a day off in exchange for overtime work on a rest day arising from the schedule of working time in an average five day working week (Article 1513 of the Labour Code),
- granting a day off in exchange for work on a Sunday or public holiday (Article 15111 § 2 and 3 of the Labour Code).
Grounds for introducing an extended reference period
An extended reference period may be introduced into any working time system, as long as it is justified by the following grounds:
- associated with organising work.
Legislation does not state how the above grounds should be interpreted. However, it is clear from the general wording of provisions that extended reference periods may be adopted in each activity in which the demand for work varies seasonally. Examples would be weather-dependent work (e.g. involving agriculture or animal husbandry) or work that is based on specific types of production that generate varying levels of work during the year (e.g. construction projects).
The employer must bear in mind that an extended reference period does not relieve the employer of the obligation to comply with the general rules of employee health and safety, which is the second ground enabling an extension of the reference period (Article 129 § 2 of the Labour Code).
An annual reference period does not have to coincide with the calendar year. Although it is recommended that the start of an extended reference period should coincide with the beginning of a new year, employers may start it at any time.
How to introduce an extended reference period?
The introduction of an extended reference period requires, first of all, the consent of employees. How this consent is obtained will depend on whether there are any trade unions at the employer.
If there are trade unions at the employer, then a collective agreement or an agreement with the workplace trade unions is used to introduce the extended reference period. Nevertheless, if it is not possible to agree the text of the agreement with all of the workplace trade unions, the employer agrees the text of the agreement with representative trade unions as defined by Article 253 par. 1 or 2 of the Trade Unions Act, in which each must represent at least 5% of the employee workforce at the employer.
If there is no workplace trade union at the employer, then the extended reference period should be introduced in an agreement concluded with the employees’ representatives who have been selected in accordance with the procedure adopted at the employer. However, employers must bear in mind that not every employee representation body will be entitled to conclude such an agreement. The employer may conclude an agreement with a permanent representative body if the employees’ representatives were elected for agreeing all matters of labour law that require agreement with the employer. The employer will not be able to conclude an agreement with employees’ representatives who were previously elected on an ad hoc basis for other specific acts (e.g. solely for the purpose of agreeing the rules of the workplace social benefits fund).
The agreement does not constitute a part of the workplace regulations, so the provisions on its introduction and termination do not apply. What this means for the employer is that, with the consent of the side of the employees, the employer may introduce the extended reference period on the date specified in the agreement and additionally specify how long the agreement will be in force. Albeit, it will only be possible to introduce the new reference period after the end of the current period. In addition, the agreement should specify the groups of employees affected by the extended reference period.
The employer must submit a copy of the agreement to the appropriate regional labour inspectorate within five working days of its conclusion. Although failure to comply with this obligation or its late fulfilment will not affect the agreement’s validity, it may expose the employer to misdemeanour liability for violating the regulations on working time (Article 281 § 1 pt. 5 of the Labour Code).
Extended reference period – traps during implementation
An extended reference period is seen as a tool for reducing employment costs associated with increased levels of work because it balances periods of such increased workload with periods of rest within the same reference period. However, whether the employer will actually make savings through an extended reference period will also depend largely on the employees themselves and the remuneration system under which they work.
Employees who are paid a fixed monthly rate are entitled to a fixed monthly remuneration regardless of their working time schedule from month to month. This means that the employees will receive the same basic salary in busy months as in the months when they do not work or work less. But there is a risk with employees who are paid a fixed monthly rate that an employee may, for example, fall ill during a period of busy work or take parental leave and not be able to work it off at a later date.
As for hourly-rate employees, employers must remember to pay each month a remuneration that is calculated based on the number of actual hours worked. This means that employees’ remuneration will vary from month to month in the reference period. For employers, all that this means is that they will have to pay employees higher remuneration during periods of increased workload. On the other hand, during months in which the employee is not required to work or works less, the employee still retains the right to a minimum wage (Article 129 § 5 of the Labour Code).
An extended reference period also gives rise to certain risks should one of the employee’s employment contract be terminated during the reference period. This is because the employment contract’s termination will require working time to be settled. However, a reconciliation must also be made with working time norms for the period between the start of the reference period and the date of the employment contract’s termination. This means that if an employee terminates his or her employment contract after a period of intense work, the employer will have no real possibility of compensating periods of intense work with periods of rest. This, in turn, means that the employer will have to pay the relevant remuneration to the employee, together with overtime pay.
Extended reference periods may make it easier for employers to spread work out in accordance with the demand in the workplace. However, employers must be mindful of complying with statutory requirements so as not to risk being accused of violating working time regulations. Employers must also bear in mind that whether an extended reference period will benefit them and actually reduce employment costs will also depend on the employees themselves and whether they continue with their employment right through the reference period.