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). Four weeks of this holiday entitlement are based on EU law (the Working Time Directive) while the extra 1.6 weeks are based on UK legislation, enacted following union campaigning. 



There is a ready reckoner for calculating holiday entitlement at: www.gov.uk/calculate-your-holiday-entitlement. This is especially useful for calculating the holiday entitlement of workers with irregular hours.


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



Under regulations 13A and 26A, WTR (as amended by the Working Time (Amendment) Regulations 2007), the four weeks of statutory holiday under the Working Time Directive must be taken in the holiday year in which it accrues. It cannot be carried forward into the next holiday year, unless the worker has been unable to take holiday due to sickness absence or maternity leave (see page 134). The additional 1.6 weeks can be carried over into the immediately following holiday year, but only if a “relevant agreement” with the employer allows this. This would typically be a term in the employment contract.

Some workers have a contractual right to extra holiday, beyond the statutory 5.6 week entitlement. Whether any of this extra holiday can be carried forward will depend on their contract of employment. 



Under EU law, the right to four weeks’ paid holiday is an important EU social right. Member states are not allowed to cut down the right, or make it too hard to enforce (KHS AG v Winfried Schulte [2011] EUECJ C-214/10). Its purpose is to protect health, safety and welfare through adequate rest (Pereda v Madrid Movilidad SA [2009] IRLR 959). 



The right to paid holiday has “direct effect” (Dominguez v Centre Informatique du Centre Ouest Atlantique [2012] IRLR 321). In other words, public sector workers can enforce the right under the Working Time Directive directly in the employment tribunal, regardless of the wording in the WTRs. In the case of private sector workers, the tribunal must implement the Directive by revising the language 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 can be paid wages as a substitute for taking their statutory holiday (regulation 13(9)(b), WTR). 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 tried to fix a nominal payment of £1 for all holiday unused at the end of the contract was unlawful and a breach of the Directive. 



Even workers who are dismissed for gross misconduct must be paid their accrued statutory holiday in full. 



Where employers provide extra holiday on top of the 5.6-week statutory allocation, they can agree their own contractual rules about how that extra holiday will be treated when the contract ends. An employee is only entitled to be paid for that extra 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). 



Workers are entitled to their normal remuneration while on holiday. 



Unions have fought some key victories for workers in the context of holiday pay in the European and national courts. The rulings only affect the four weeks of holiday under the Working Time Directive — not the extra 1.6 weeks available under UK law.



It is now established under EU law that a worker must receive their normal wages when taking statutory holiday under the Working Time Directive, following landmark litigation fought by pilots’ union BALPA. In other words, holiday pay must be comparable to the pay you would normally receive when working (Williams v British Airways [2011] EUECJ C-155/10). In particular, any contract term that limits the four weeks of statutory holiday pay to “basic pay only”, when normal pay includes other components, is against the law as a result of this ruling.


The Williams ruling established that when on holiday, workers must be paid any component of their normal wages that is “linked intrinsically” to the performance of their contractual tasks. Otherwise, the Directive’s health and safety purpose would be defeated, because workers would be deterred from taking holiday by the prospect of income loss.
Following Williams, a series of key union-backed rulings have tested what is meant by “normal” wages. As a result of these rulings, it is now established that holiday pay must reflect:


• all regular overtime, guaranteed and non-guaranteed;


• travel time payments;


• shift premium payments;


• weekend premium payments;


• anti-social hours payments;


• results-based commission; and


• any other regular payments linked to work.


The key rulings are Bear Scotland Limited, Hertel (UK) Limited and Amec Group Limited v Fulton, Woods, Law and others [2014] UKEATS/0047/13/B1, supported by general union Unite and British Gas Trading Limited v (1) Lock and (2) BIS [2016] EWCA 983 CA, supported by UNISON.


Voluntary overtime (i.e. overtime that the employer is not obliged to offer and which, if offered, the employee is not obliged to do) must be included, as long as it is worked regularly (Patterson v Castlereagh Borough Council [2015] NICA 47).



Despite employer fears, the Bear Scotland ruling did not result in large claims for back-payment of arrears of holiday pay. This is because the EAT 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. Even so, the ruling led directly to new regulations — the Deduction from Wages (Limitation) Regulations 2014 — limiting all tribunal claims for unlawful deductions from wages to a maximum of two years of back pay. As explained on page 111, the scope of the new regulations extends far beyond holiday pay, to cover most claims for unpaid wages owed under the employment contract.


Lock v British Gas – results-based commission


In a test case supported by public services union UNISON, the ECJ has confirmed that for workers whose pay is made up wholly or partly of results-based commission (such as many sales workers), holiday pay must include the commission they would have earned had they not been on holiday:


The Court of Appeal has confirmed that the WTRs can be interpreted to enable Mr Lock to enforce his right to holiday pay (British Gas Trading Limited v (1) Lock and (2) BIS [2016] EWCA 983). British Gas has been refused permission to appeal against this ruling to the Supreme Court, so the case must now return to the employment tribunal to calculate the amount owed.


The Court of Appeal approved the tribunal’s decision to use a 12-week reference period for averaging the variable commission so as to calculate the holiday pay rate. 12 weeks may not always be the correct reference period, as this will depend on the facts. 



Thousands of similar cases were put on hold pending the final outcome, around 700 supported by UNISON.


The ruling applies only to the four weeks of holiday pay covered by the Working Time Directive, and only to workers like Mr Lock whose wages include contractual “results-based” commission – not to irregular or one-off commission payments, or annual results-based bonuses



UNISON has warned that the decision, along with other holiday pay gains won by unions in the tribunal could be at risk, depending on the outcome of the government negotiations to leave the EU.


It is unlawful to pay holiday pay as part of the hourly rate of pay. This practice, known as “rolled-up holiday pay”, breaches the Working Time Directive, which requires workers to be paid for their holiday when 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 working days (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, an employer is allowed to specify in writing (normally in the employment contract, or an annual leave policy) when in the year holiday must (or must not) be taken, and how many days can be taken at a time. For example, the contract can insist on holiday being saved for the Christmas shutdown, or taken during the school holidays or the contractual notice period.


The employer must give twice as much notice in advance of the earliest leave day as the number of leave days to be taken. For example, four weeks’ notice is required to give notice of a two week Christmas shutdown.


In Russell and others v Transocean International Resources Limited [2012] IRLR 149, oil workers worked two weeks onshore followed by two weeks off shore without work duties. The Supreme Court said that the employer was allowed to designate the two weeks spent on shore as annual leave. Importantly, the workers had whole weeks available under this arrangement in which to take their leave. The same would not apply if there is less than a week available. It does not allow an employer, for example, to force part-time workers to take holiday on their non-working days.


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



An 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.


Workers and employers can agree a different scheme for giving notice. A contract term in an individual employment contract can be 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. There are tribunal fees (£160 issue fee and £230 hearing fee). Acas EC applies. No claim can be brought in the employment tribunal without first submitting an Acas EC Notification Form available from the Acas website. This step must be taken within the three-month time period for bringing the claim. See Chapter 13 for information on fees, “Help with fees” and Acas EC.