Holiday pay 


Unions have secured several landmark rulings in the European and national courts concerning holiday pay, benefiting millions of workers. 


Rulings by the ECJ only affect the four weeks of holiday under the Working Time Directive (WTD), not the extra 1.6 weeks available under national law. 


(It is important to note that under UK law, it has long been established that guaranteed overtime (that is, contractual overtime that must be offered and must be accepted) must be taken into account when calculating holiday pay. This has nothing to do with EU law and must be applied for the whole 5.6 weeks of the statutory holiday).


The leading ECJ ruling on holiday pay, Williams v British Airways [2011] EUECJ C-155/10, was won with the support of pilots’ union BALPA. This ruling established that a worker must be paid their normal remuneration when taking their four weeks’ statutory holiday under the WTD. Pay when on holiday must be comparable to normal pay when working. Any other conclusion would defeat the health and safety purpose of the WTD, since workers would be deterred from taking holiday through fear of income loss. 


The Williams ruling also established that holiday pay must also include any component of normal wages that is “linked intrinsically” to the performance of a worker’s contractual tasks. 


Another very important case, 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, used the Williams ruling to win a key victory confirming that regularly worked overtime and other regular payments must be included when calculating holiday pay. 


For a payment to be part of “normal” remuneration, it must have been paid over a sufficient period of time. Any payments that are usual and regular (as opposed to unusual or exceptional) should be treated as part of a worker’s normal remuneration (Dudley Metropolitan Borough Council v Willetts [2017] UKEAT/0334/16/JOJ).


Here are some payments that tribunals have decided must be included when calculating holiday pay under the WTD: 


• non-guaranteed overtime (i.e. overtime that the employer is not obliged to offer but If offered, the employee is obliged to work);



• regularly worked voluntary overtime; 


• travel-time payments;



• payments for seniority, length of service and professional qualifications;


• call-out allowances;


• out-of-hours standby pay; 


• shift premium payments;



• weekend premium payments;



• anti-social hours payments;



• results-based commission (see below); and



• any other regular payments linked to work.



Where pay is made up wholly or partly of results-based commission (as is the case for many sales workers), holiday pay must include the commission the worker would have earned had they not been on holiday. This was established by the ECJ in an important case supported by UNISON:



The Lock ruling applies only to workers whose wages include contractual “results-based” commission, not to irregular or one-off commission payments.




Where there are no normal working hours (for example, zero hours contract workers with an irregular working pattern), holiday pay must be worked out by calculating a "week's pay" based on the worker's average weekly earnings in the 12 weeks prior to the holiday being taken. If the worker has done no work in any of the 12 weeks, the employer must go back in time to the next earlier week during which they have worked (section 224, ERA 96).


The use of the 12-week reference period was approved for claims based on variable commission payments in the Lock ruling, although each case will depend on its own facts. 




The 12-week reference period must also be used for any workers with no normal working hours who work annualised or “term-time only” contracts (such as visiting music teachers in schools). In Brazel v The Harpur Trust [2018] UKEAT/0102/17/LA, a case supported by the Incorporated Society of Musicians, the EAT confirmed that the 12-week reference period applies when calculating holiday for all workers with irregular hours, even though this can result in a “windfall” for the worker concerned, when compared to the holiday entitlement of workers with regular hours. There is no law that prevents part-time workers being treated more favourably than their full-time counterparts, confirmed the EAT. 


Where a worker increases their hours during the holiday year, there is no obligation under the Working Time Directive to recalculate the annual leave entitlement already built up and possibly taken, to reflect the new working pattern. The same is true where a worker cuts their hours during the holiday year (Greenfield v The Care Bureau [2015] Case C‑219/14). 


Under the Deduction from Wages (Limitation) Regulations 2014, tribunal claims for unlawful deductions from wages (including statutory holiday pay)are capped at a maximum of two years of back pay. The case of King v The Sash Window Workshop [2017] C-214/16, summarised on page 120, suggests that these regulations may infringe the Working Time Directive. Mr King was awarded 13 years of arrears of unpaid holiday pay. 


It is unlawful to include holiday pay within the hourly rate of pay. This practice, known as “rolled-up holiday pay”, breaches the WTD, 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 calculate holiday pay is not to divide someone’s annual salary by 365 (a calendar year) but instead by the number of working days in the year (Leisure Leagues v Maconnachie [2002] IRLR 600, 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 their 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 can 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 could designate the two weeks 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 were less than a week available. For example, the WTD does not allow an employer to force part-time workers to take holiday on 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. Any conditions 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 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 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. The first step is to submit an Acas Early Conciliation (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 14 for more information.