Holidays and holiday pay

All workers are entitled to a minimum of 5.6 weeks’ paid holiday a year (equivalent to 28 days for someone who works a five-day week) under the Working Time Regulations (WTR). The original right to four weeks holiday was increased to 4.8 weeks in October 2007, and from 4.8 to 5.6 weeks in April 2009, as a result of union campaigning.

Four weeks of the holiday entitlement are based on European law (the Working Time Directive). The extra 1.6 weeks are based on UK legislation.

There is a ready reckoner for calculating holiday entitlement at: www.gov.uk/calculate-your-holiday-entitlement.

The right to paid annual leave is available to all workers, not just employees (see Chapter 2: Categories of worker). The genuinely self-employed are not entitled to holiday pay.

In general, statutory holiday must be taken in the holiday year in which it accrues, unless the employment contract allows untaken holiday to be carried forward into the next holiday year. There is an exception for workers who have been unable to take holiday due to sickness absence (see page 108).

EU law treats the right to four weeks’ paid holiday as an important EU social right. This means that governments of member states are not allowed to cut down the right, or make it too difficult to enforce in a tribunal (KHS AG v Winfried Schulte [2011] EUECJ C-214/10).

The purpose of the right to paid holiday is to protect health, safety and welfare through adequate rest (Pereda v Madrid Movilidad SA [2009] IRLR 959).

The right has “direct effect” (Dominguez v Centre Informatique du Centre Ouest Atlantique [2012] IRLR 321). In other words, public sector workers can enforce the relevant parts of the Directive directly against their employer in the employment tribunal regardless of the wording of the Working Time Regulations (see Chapter 1). In the case of private sector workers, the tribunal must implement the Directive, by changing the wording of the regulations if necessary (NHS Leeds v Larner [2012] EWCA Civ 1034).

Because the purpose of paid annual leave is to protect health and safety, no worker is allowed to be paid wages instead of taking their statutory holiday. The only exception is where the employment has ended.

The right to be paid for unused statutory holiday at the end of employment is absolute. Any contract term that tries to remove it is void (Whitley & District Men’s Club v Mackay [2001] IRLR 595).

In Podlasiak v Edinburgh Woollen Mill Limited ET/2701291/13, a tribunal ruled that a term in a zero hours contract that fixed a nominal payment of £1 for all holiday unused at the end of the contract was unlawful and a breach of the Working Time Directive.

Even in cases of dismissal for gross misconduct, workers must be paid their accrued statutory holiday in full.

Where employers provide extra holiday in addition to the 5.6-week annual statutory allocation, they can agree their own rules about the treatment of that extra holiday under the employment contract. In particular, an employee is only entitled to be paid for unused contractual holiday if the contract says so. Normally there is an express contractual term but sometimes the tribunal may imply a term (Janes Solicitors v Lamb Simpson EAT/323/94).

Pay during holidays is calculated in the same way as a normal week’s pay (sections 221 to 224 of the ERA 96).

There have been important case law developments concerning the calculation of holiday pay as a result of strategic, union-backed litigation.

Following litigation supported by pilots union BALPA, it is now established under EU law that a worker must receive their normal remuneration when taking statutory holiday under the Working Time Directive. Holiday pay must be comparable to pay when working (Williams v British Airways [2011] EUECJ C-155/10).

The Williams ruling established that when on holiday, workers must be paid any element of their normal pay that is linked intrinsically to the performance of their contractual tasks. This is because otherwise the health and safety purpose of the Directive would be thwarted, because workers would be deterred from taking holiday due to the prospect of income loss.

Building on the Williams case, a claim supported by public services union UNISON has confirmed that holiday pay must include commission:

Implementing the ECJ ruling in April 2015, the Leicester Employment Tribunal confirmed that British Gas breached regulation 13 WTR by failing to include commission when it calculated Mr Lock’s holiday pay, and that Lock could bring a tribunal claim for unlawful deduction of wages (see page 91). The ruling applies only to the four weeks of statutory holiday under the Working Time Directive.

Another case, backed by general union Unite, has established that holiday pay must include regular, non-guaranteed overtime, and other payments linked to work such as travel time payments, shift or weekend premium payments and anti-social hours payments. These payments are all intrinsically linked to the performance of tasks under the contract of employment and so must be included (Bear Scotland Limited, Hertel (UK) Limited and Amec Group Limited v Fulton, Woods, Law and others [2014] UKEATS/0047/13/B1).

There are no plans to appeal the Bear Scotland ruling.

In June 2015, the Northern Ireland Court of Appeal will rule on whether voluntary overtime must be taken into account when calculating holiday pay (i.e. overtime that the employer is not obliged to offer and which, if offered, the employee is not obliged to do). This is the case of Patterson v Castlereagh Borough Council Industrial Tribunal Case ref 1783.

Despite employer fears, the Bear Scotland ruling does not allow large claims for back-payment of arrears of holiday pay. This is because the EAT has ruled that a claim for unpaid statutory holiday pay will be out of time if there has been a gap of more than three months between successive underpayments.

In other words, only underpayments of holiday pay made less than three months before the date of the tribunal claim can be claimed. Unite is not appealing this aspect of the Bear Scotland ruling as its intention was to change future employer practices, not to present them with large bills for back pay.

Nevertheless, the government responded to the ruling by setting up a “taskforce” without union involvement to limit its effect. This led to a rushed set of new regulations — the Deduction from Wages (Limitation) Regulations 2014, limiting back pay claims to a maximum of two years, explained on page 92. Note that the new regulations do not apply to any tribunal claims presented before 1 July 2015.

These holiday pay rulings only affect the four weeks of holiday under the Working Time Directive — not the extra 1.6 weeks available under UK law.

As a result of these rulings, any contract term that limits the four weeks of statutory holiday pay to basic pay only is unlawful.

The variable element of holiday pay should be worked out by averaging pay over the preceding 12-week period (May Gurney v Adshead & 95 others EAT/0150/06).

It is unlawful to pay holiday pay as part of the hourly rate of pay. The practice, known as rolled-up holiday pay, breaches the Working Time Directive which requires workers to be paid for their holiday at the time they take it (Robinson-Steele v RD Retail Services Ltd [2006] IRLR 386).

The correct way to work out holiday pay is not to divide someone’s annual salary by 365 (a calendar year). Instead, the employer should divide the annual salary by the number of days actually worked (Leisure Leagues v Maconnachie [2002] IRLR 600). This was confirmed by the EAT in Yarrow v Edwards Chartered Accountants [2007] UKEAT 0116/07/0806.

Holiday rights accrue on a monthly basis. In the first year, a worker is entitled to a twelfth of the statutory annual leave entitlement for every month worked. The amount of time that can be taken at any one time within the first year of work can be rounded up to the nearest half a day.

Under the statutory scheme, workers who want to take leave must give notice of at least twice the length of the holiday requested. This requirement can be varied by the employment contract or through collective bargaining, but any conditions imposed for taking leave must not be unreasonable, arbitrary or capricious (Lyons v Mitie Security UKEAT/0081/09, KHS AG v Winfried Schulte [2011] EUECJ C-214/10).

The employer can ask for holiday to be deferred as long as they tell the employee in advance, giving notice which is at least as long as the holiday requested. Shorter notice can be given if a “relevant agreement” allows this. A contract term that entitles the employer to require employees to take holiday during their notice period is a “relevant agreement” for this purpose (Industry & Commerce Maintenance v Briffa [2008] UKEAT/0215/08/CEA).

If an employer refuses to pay for statutory holidays, a worker can bring a tribunal claim.