7. Annual leave

The right to paid holiday has proved to be controversial if the number of tribunal and EAT cases is anything to go by. The fact that employers could include bank and public holidays as part of statutory entitlement was a source of considerable irritation which the government has addressed by increasing the statutory minimum.

Leave entitlement

The statutory minimum now provided by the regulations is:

• until 1 April 2009: 4.8 weeks (equivalent to 24 days for someone working a five-day week, including bank holidays);

• after 1 April 2009: 5.6 weeks (28 days for someone working a five-day week, including bank holidays);

• 28 days becomes the maximum statutory holiday entitlement.

Entitlement to paid leave under the WTR regulations can’t be replaced by a payment in lieu except where employment is terminated (but see below) but there is provision for limited carry-over of the additional annual leave (over four weeks) to the following leave year under a relevant agreement.

During an 18-month phase-in period for the improved entitlement, employers can “buy-out” 0.8 weeks’ holiday. The additional leave does not apply to a worker whose employer already provides each worker with an entitlement to additional annual leave of 1.6 weeks or eight days (whichever is the lesser) at 1 October 2007 by virtue of a relevant agreement (WTR 26A).

Department for Business, Enterprise and Regulatory Reform (BERR) guidance defines a week’s leave, saying that it “should allow workers to be away from work for a week” and “should be the same amount of time as the working week”. If working a five-day week entitles a worker to 24 days’ leave (prior to April 2009), working a three-day week entitles them to 14.4 days’ leave under the regulations.

The relationship between leave and other non-working time can cause difficulties. A 2007 tribunal found in favour of offshore workers distinguishing between non-work that is part of the normal working pattern (i.e. onshore “field breaks”), and annual leave releasing them from what would otherwise be an obligation to work (Case no. S1104056104). An agreement subsequently negotiated by the general unions Unite (Amicus section) and GMB with the Offshore Contractors Association (OCA) provides workers with additional paid time off.

The fishing industry’s Code of Practice says that normal patterns of work and remuneration incorporate the minimum requirements for annual leave. But for seafarers, MCA guidance says that annual leave is separate from and in addition to periods of rest and compensatory leave which they receive as part of their working arrangements.

While road transport workers covered by the RTR regulations obtain statutory holiday entitlement under the WTR, workers in the aviation (CAR) and maritime (FVR, IWR) sectors obtain it under their own working time regulations. At the time that this booklet was published, these had yet to be amended to reflect the increase from four weeks’ leave to the current provision available under the WTR.

However, in a case brought by pilots’ association BALPA, the EAT ruled that although the CAR regulations do not specify how holiday pay is calculated, whatever arrangement is made has to comply with the Working Time Directive because domestic law has to comply with Community law; they were therefore entitled to receive their usual pay supplements as part of their holiday pay. (British Airways v Williams & others UKEAT/0377/07).

Accrual of leave

Leave accrual arrangements for a worker’s first year in employment are set out in WTR 15(a). The right to paid annual leave begins on the first day of employment but BERR guidance says, in the first year, leave which can actually be taken builds up monthly in advance at the rate of one-twelfth of the annual entitlement .

Arrangements for taking leave

Leave under the regulations may be taken in instalments but:

• only in the leave year in respect of which it is due; and

• it may not be replaced by payment in lieu except where the worker’s employment is ended (but see page 51).

The leave year starts on a date set by a relevant agreement (see page 57) or otherwise on the date that the worker’s employment began. Workers can take all or part of the leave to which they are entitled in a leave year but notice requirements mean that they have to specify the days on which the leave is to be taken and, in the case of a part day, its duration (WTR 15). The notice period that a worker must give should be at least twice the period of the leave to be taken but the employer should then reply to the request within the same number of days as the leave to be taken. Any obligations regarding dates and notice may be varied or excluded by a relevant agreement.

These rules mean that employers can refuse to let a worker take holiday when s/he wants it, by giving counter-notice (any contractual holiday over and above the statutory minimum will be subject to any rules set out in the worker’s contract).

Holiday pay

The WTR regulations rely on sections 221 to 224 of the Employment Rights Act 1996 to determine a week’s pay for “each week of leave” (WTR 16). Regulation 13(6) of the WTR stating that any fraction of a day is to be treated as a whole day has been removed.

BERR guidance explains that for workers whose normal working hours do not vary, “a week’s pay is the pay due for the basic hours you are contracted to work”. Pay for overtime hours is not included unless it is guaranteed overtime, required by the worker’s contract.

Where earnings vary with the amount of work done (e.g. piecework) or when a week’s pay is partly made up of variable bonuses or commission directly related to that week’s output, then a week’s pay is the average hourly rate multiplied by normal working hours. In this case, the hourly rate is calculated by dividing weekly pay over the previous 12 weeks by the number of hours worked during the same period (excluding pay and hours of non-compulsory overtime). Any week in which no pay was received is replaced by the week before the 12 weeks, to bring the total to 12. For workers on commission or performance-related bonuses, BERR guidance says that 12/13 of any quarterly bonus and 12/52 of any annual bonus is included: “Only bonuses specifically related to a week’s work should be included; general ‘profit sharing’ or other such bonuses are not included”.

A week’s pay is the total eligible pay (excluding voluntary overtime but including relevant bonuses) over the 12-week period divided by 12. Shift workers whose hours and earnings vary each week should, BERR says, average out the number of hours worked each week. Pieceworkers can work out their average hourly rate in the same way (not including voluntary overtime in either of these calculations, but including shift premia).

The BBC found it had to make pay-outs of up to £4,000 after discovering that employees’ holiday pay should have included additional payments for unsocial hours and additional responsibilities (if these are a normal part of their salary) and the BECTU broadcasting union found that Channel 4 had neglected to include its night pay allowance in holiday pay.

Examples of other payments that should have been be counted in the calculation of holiday pay have included a £20 weekly payment for a change in shift arrangements; and (in the case of May Gurney Ltd v Adshead & 95 others UKEAT/0150/06) a fixed attendance payment of £8 or £10 for a full week.

Workers on irregular hours add up their pay over the previous 12 weeks and divide it by 12 (adding in pay from the week before the 12th week if they didn’t earn anything one week). Two drivers receiving enhanced pay for hours in excess of 40 hours a week, which included a payment for loading/unloading based on a predetermined time rather than the actual time taken, could not be said to have normal working hours, the EAT concluded. The drivers’ bonuses should be included in holiday pay (Sanderson and Griffin v Exel Management Services Ltd UKEAT/0194/06).

Annualised hours contracts can complicate the calculation of holiday pay. In a case involving railway workers, the EAT concluded that they had agreed to work 1,930 hours a year but for some of those hours were on holiday and not attending work. They were not entitled to holiday pay on top of their annual salary (Cook and others v C2C Rail Ltd EAT/0604/05).

However, holiday pay could be averaged over only 48 weeks of the year if this method of calculation ensured workers received the same pay on holiday as they did when they were working (British Airways plc v and Forde [2006] EWCA Civ 537 ([2006] IRLR 533).

A worker who leaves the job part way through the holiday year (or is sacked) is entitled to be paid in lieu of untaken holiday entitlement (WTR 14). The rate of pay for each day’s leave should be calculated by taking annual pay divided by the number of working days in the year, the EAT having held that this the appropriate calculation (Leisure Leagues v Maconnachie [2002] IRLR 600), (Yarrow v Edwards Chartered Accountants UKEAT/0116/07). Different rules apply to contractual entitlement (e.g. 14/365ths pay for 10 days’ holiday outstanding).

Rolled-up holiday pay

Some employers try to include holiday pay in a worker’s basic pay and say that there is no obligation to pay again when holidays are actually taken. This is known as a “rolled-up” rate of pay.

After a succession of contradictory rulings, BERR guidance on the WTR says that this practice is “considered unlawful” and that “payment for statutory annual leave should be made at the time when leave is taken”. This advice follows a 2006 European Court of Justice judgement, as well as more recent judgements UK courts (Robinson-Steele v PD Retail Services, Clarke v Frank Staddon Ltd, and Caulfield & Others v Hanson Clay Products Ltd (formerly Marshalls Clay Products Ltd) 16 March 2006).

Sickness absence and paid leave

In 2005, the Court of Appeal ruled that someone on long-term sick leave could not choose to take some of it as holiday under the statutory scheme (although contractual schemes can allow this) and would be prevented from carrying entitlement forward into the following holiday year (again, allowable under a relevant contractual clause) (Commissioners of Inland Revenue v Ainsworth & others [2005] EWCA Civ 441 ([2005] IRLR 465). The PCS civil service union took this to the House of Lords where it was referred to the European Court of Justice.

A preliminary opinion (not a final decision) on the case given by an Advocate General of the ECJ in January 2008 suggested that a worker on indefinite sick leave is entitled to designate a future period as paid annual leave, during a period in which he would otherwise be on sick leave; however, he may not take this leave during a period in which he would otherwise be on sick leave. Secondly, where an employment relationship is terminated, workers would in any event be entitled to a compensatory payment as a replacement for leave accrued but not taken due to illness; this was also the case where the worker was on sick leave for all or part of the leave year in question. Finally the worker should receive the equivalent of his normal pay (Case C520/06 C. Stringer, Sabriye Kilic, Michael Thwaites, Keith Ainsworth, Sabba Khan v Her Majesty’s Revenue and Customs).