Holiday Pay round-up

10 Dec

The subject of entitlement to holidays and pay in lieu is extremely productive of reported case-law, some of which has been discussed in earlier blogs on this website.

Read More

The subject of entitlement to holidays and pay in lieu is extremely productive of reported case-law, some of which has been discussed in earlier blogs on this website.

It is sometimes difficult even for lawyers to see the wood from the trees in this area of Employment Law. The following is offered as a somewhat simplified summary of the main important points:

Sources of obligations and rights
If there is a contract (or relevant agreement) which deals with this subject, and this is at least as generous to the employee as the provisions of the Working Time Regulations (the WTRs), then the contract will apply. If there is no contractual provision or if any contract is less generous than the WTRS, then the WTRS will apply.

Who are entitled to paid holidays?
Employees are entitled to receive paid holidays from their employees and workers are entitled to receive paid holidays from their work providers. An employee typically works under the control of an employer and is subject to mutuality of obligation and a requirement to provide personal performance.

A worker is someone other than an employee who is in the same subordinate and dependent position as are employees vis a vis their employers, and who does  not have sufficient arms length and independent position to be treated as being able to look after himself. Building labourers and plumbers tied to Pimlico Plumbers in London, for example have been classified as workers.

(In the following paragraphs of this blog, for convenience both workers and employees are referred to as employees).

What pay can be claimed by the employee or worker from the employer in lieu of holidays not taken by the date of termination of employment?

Under the WTR’s it is possible to get pay in lieu of untaken holidays when employment is terminated, but only in respect of the leave year in which the employment is terminated. The basic rule is thus “use it or lose it”.

(Unless the employer has a clear policy on this, the leave year will start on the anniversary of the commencement of employment).

Exceptionally, an employee who has been unable to take holidays because he has been on long term sick leave, or for some other reason beyond his control, must be allowed to carry forward those holidays to a later leave year and must be paid in lieu for earlier leave years if his employment is terminated before it has been taken.

It is possible for employers to set a limit on the time period after return to work into which such exceptional employees can carry forward their untaken holidays but any such limit on the carry-forward period should be at least 15 months.

What is the leave entitlement under the WTRs?
Under the WTR’s a 5-day-a week worker is  entitled to 4 weeks (i.e. 20 working days) holiday under regulation 13 (the basic entitlement) and entitled to 1.6 weeks (i.e. a further  8 days in the case of a 5 day-a-week worker) under regulation 13A (the additional entitlement). The WTR leave cap is thus 28 working days holidays (regulation 13A(3)). Persons working part time get proportionately less.

A Respondent is entitled to credit for bank holidays (or the substitute days which will have been made into Bank Holidays instead if any of these fell on a Saturday or Sunday,) if the Claimant was paid for these as part of his normal pay.

How is the pay in lieu calculated?
Payments in lieu must include pay for overtime periods which employees have been required to work and they also include allowances which are intrinsically linked to performance (for example a pilots flying-time allowance)

The rate of daily pay for untaken holidays for a 5-day-a-week worker under the WTRs is calculated as follows: annual net pay /52 /5.  

How and when can pay in lieu be claimed in the ET?
Claims for arrear holiday pay can be claimed either under the WTRS or as an unauthorised deduction from wages under the Employment Rights Act 1996. As a result, claimants have a choice of claiming within three months from the last in a series of deductions under the ERA, or claiming within three months from the date of each deduction, as stipulated by the WTRs.

Can employers dictate when holiday is taken?
Employees working weekly shifts – e.g. 2 weeks on followed by a 2 weeks off “field break” - can be required to take their statutory annual leave during the latter, provided that the appropriate notice is given by the employer. i.e. Employers can designate times for annual leave when the workers are roistered not to work anyway.

Can holiday pay be rolled-up?
It is possible for an employer to get credit for paying holiday pay which has been paid together with and rolled up in ordinary pay provided that the payments have been made in a transparent and comprehensible manner explained in advance – and good practice would show this as a separate amount in each pay slip.

Jeremy Burns



For more information on Employment Law, click here.