Croner’s Amy Paxton explains what your holiday leave pay and entitlement obligations are as a UK employer including basic rights, contractual rights and the use of bank holidays.
The law and Working Time Regulations
The legislation on paid holiday entitlement is contained within the Working Time Regulations 1998 (the regulations) which implement European legislation (the Working Time Directive). The regulations are binding on all UK Employers, whereas the directive is only directly binding on public bodies or private bodies carrying out a public function.
The provisions contained within the regulations, together with recent case law has seen an increase in confusion on what workers are entitled to and many employers are unsure as to exactly what their obligations are.
The regulations apply to most workers in the UK. Those who are genuinely self-employed (where the organisation is the individual’s client rather than employer) are not covered by the regulations.
However, there have been a number of cases where individuals, who might at first sight, appear to be self-employed (e.g. certain subcontractors), that have been found to be workers since they were contracted to perform work personally.
The regulations give workers the right to a minimum of 5.6 weeks’ paid leave per leave year up to a maximum of 28 days. This entitlement is more generous than that prescribed by the Working Time Directive, which is four weeks’ paid leave.
This entitlement also includes public and bank holidays. Employers can also give workers more holiday than the statutory minimum should they wish to do so.
Workers have the right to paid holiday from their first day of employment.
The accrual rate for new employees is given at the rate of one-twelfth of the statutory entitlement, rounded up to the nearest half day, on the first day of each month of the first year.
The holiday year may be fixed by a relevant agreement, (typically a contract of employment, a workforce agreement or a collective agreement with a recognised trade union).
If not, it runs from the employees’ start date and each subsequent anniversary.
Any holiday entitlement from the original 5.6 weeks’ leave must be taken within the holiday year in question, otherwise it will be forfeited.
“Employers can also give workers more holiday than the statutory minimum should they wish to do so”
There is, however, the possibility to carry over any additional leave (extra holiday leave agreed by the employer over the statutory minimum) from one holiday year to the next, if it is specified in a relevant agreement.
Additionally, following the EAT decision in Sood Enterprises v Healy , employees who have been unable to take their annual holiday entitlement because they have been off long-term sick, will also be entitled to carry over at least four weeks’ leave from the previous leave year.
If a worker leaves having taken fewer holidays than he or she is entitled to, he or she should be paid in lieu of the accrued untaken holiday. This does not need to be rounded up but cannot be rounded down.
If a worker leaves having taken more than he or she has accrued, a relevant agreement may provide for a deduction from pay in lieu of the excess holiday.
In any calculation of holiday entitlement during the first year, all fractions are to be rounded up to the nearest half day, except on termination.
Fractions of a day’s holiday at any time apart from in the first year of employment do not have to be rounded up.
Notification of holidays
If a worker wants to take a holiday they should give notice in writing of his or her intention to take any holiday.
Under the regulations, the notice required is equivalent to twice the length of time of the holiday requested.
If for any reason you are not able to let the worker take the time off you must tell them in writing within a further time period equivalent to the length of time of the holiday request.
These notice requirements can be varied or dis-applied by agreement.
You may decide that you want to fix some or all of the holidays.
If you do you will need to give notice in writing to each worker, which should be equivalent to twice the length of time of the holiday to be fixed.
Payment for holidays should be made at the rate of a ‘week’s pay’ for each week of holiday taken under the regulations. Where the worker has normal working hours (hours and pay does not vary week to week) then payment for holidays should be the same rate as worker’s normal pay and calculated on the basis of the worker’s normal hours of work.
The general principle is that a worker should receive the same remuneration while they are on holiday as they would if they were at work.
Consequently, following a significant amount of case law, employers should include all types of overtime, including voluntary overtime, when calculating a worker’s statutory holiday pay, with the exception of overtime that is only worked on a genuinely occasional and infrequent basis.
There is an argument that the requirement to include overtime pay when calculating holiday pay can be limited to four weeks leave as prescribed by the Working Time Directive as opposed to the full 5.6 weeks required under the regulations. Employers wishing to explore options here should seek independent legal advice.
For workers who have normal working hours but whose pay varies from week to week (e.g. pieceworkers), a week’s pay is calculated by taking average remuneration over the previous 12 working weeks.
For employees who do not have normal working hours, a week’s pay is calculated by taking average remuneration over the previous 12 working weeks.
When calculating the 12-week average, you must discount any weeks where the employee received no remuneration and will therefore need to consider earlier weeks where the employee did receive remuneration to bring the total to 12.
If there are no normal hours of work or the rate of pay varies, holiday pay is calculated on the basis of the average pay received by the worker in the previous 12 weeks discounting any weeks where there was no remuneration payable.
If you decide to offer more days than the statutory minimum, you are free to make contractual provisions in a relevant agreement in relation to holiday pay for holiday entitlement in excess of the minimum 5.6 weeks.
An employer is not permitted to pay in lieu of the statutory minimum holiday entitlement unless the worker is leaving the organisation.
Part-time workers have a right to a pro rata proportion of the statutory minimum annual leave entitlement.
For example, a part-time worker who works three full days per week will be entitled to take a three- fifths proportion of the 5.6 weeks of holiday.
What this means is that he or she will be entitled to 16.8 days paid holiday per year.
There is no requirement to round up entitlements to the nearest full day – although it may be easier to do so for administrative purposes. However, you cannot round the entitlement down to the nearest day.
Part-time workers are protected from being treated less favourably than a full-time counterpart. Any less favourable treatment could result in them pursuing a claim in the employment tribunal.
“Employers must ensure that they have in place relevant agreements covering the holiday year, deduction of excess holiday pay entitlement upon termination and notification of holidays and refusal of holidays”
Generally, such claims must be presented within three months of the date of the breach.
Where an employee is dismissed by an employer for asserting their rights under the regulations, such dismissal will be automatically unfair and the employee could pursue a claim.
In such cases, the employee does not need to have the usual two years of qualifying service to bring an unfair dismissal claim.
Employers must ensure that they have in place relevant agreements covering the holiday year, deduction of excess holiday pay entitlement upon termination and notification of holidays and refusal of holidays, or the default provisions in the regulations will apply.
If there is no relevant agreement on the holiday year, the employer may well be faced with each employee on a different holiday year.
Where current holiday rules operate in any way such as to deny a worker any entitlement under the regulations, the regulations will prevail.
An employer cannot argue that overall its scheme is more beneficial to the worker.
Amy Paxton is manager of the solicitor team at Croner.