Holiday pay: 20 frequently asked questions

Holiday pay is one of the most important rights enjoyed by employees, yet a workers' entitlement inevitably raises questions for both employers and employees.

Paul Ball in our Employment team looks at answers to the most commonly asked questions:

1. How much paid leave is a worker entitled to take in any year?
   The Working Time Regulations 1998 (WTR) provide that all workers have the right to 5.6 weeks paid annual leave. This entitlement includes Public Holidays. This reflects that under UK law there are usually eight Public Holidays per year and under EU law there is a requirement to provide at least four weeks paid holiday as a health and safety measure. The entitlement of part time workers is calculated on a pro-rata basis.
    
2. Does a worker have a right to carry over their statutory holiday from one year to the next?
   The WTR do not provide for any right to carry over. However, under EU law if the worker has been unable to take the minimum four weeks annual leave they should be allowed to carry it forward. If for example a worker due to sickness has not taken four weeks leave during the year their entitlement can be carried forwards for up to eighteen months from the end of the leave year in which it would have ordinarily been lost.
    
3. Does an employee on maternity leave have the right to carry forward her leave to the next leave year?
   The employee should not be prevented from taking her leave because she has been on maternity leave. It would be good practice to agree with the employee that she should take her holiday prior to starting maternity leave. If there are circumstances that prevent this, for example where baby arrives early, the annual leave should be carried forward so that the employee may take it when the maternity leave comes to an end.
    
4. Can a worker take holiday again if they fall sick during a holiday?
   If this will mean that the worker has not been able to take their minimum annual four week leave they may be entitled to take the leave at a later date. The employer is entitled to stipulate that the worker should provide evidence of their sickness in these circumstances.
    
5. Can an employer stipulate when a worker takes their statutory annual leave?
   Yes, there may be a provision in the contract of employment that states that the holidays will be at fixed points in the year or that the employer reserves the right to direct when annual leave is taken. In the absence of such a provision the WTR provide that the employer may give notice that the leave is to be taken. The amount of notice will match the period of leave that is to be taken.
    
6. How does a worker claim for outstanding holiday pay?
   A claim can be made in the Employment Tribunal for “unlawful deductions from wages”. The claim must be submitted – subject to any extension of time for Acas Conciliation - within three months of the date that the pay was due.
    
7. Can a claim be made for pay in respect of more than one holiday?
   Where an employee has taken holiday and not been paid properly there will be a deduction. If it can be shown that there has been a series of deductions and the claim is brought within three months of the last deduction the claim may extend back. There will be a series of deductions where the holiday pay dates are all within three months of each other. A gap of more than three months will break the series according to current case law.
    
8. How far back can a worker claim for a series of deductions?
   The Deduction from Wages (Limitation) Regulations 2014 provides that a claim for unlawful deductions cannot extend back further than two years from when the claim is submitted.
    
9. Could a claim be made for holiday pay in the civil courts?
   A claim could be brought for breach of contract in the civil courts if the holiday provisions in the employment contract have been breached. However, there can be no breach of contract claim brought based on the statutory rights under the WTR. These create statutory rather than contractual rights.
    
10. Is there any other claim for holiday pay that an employee can bring?
    Under the WTR also a claim may be made for statutory holiday pay that has not been paid. A claim must be presented within three months of the date payment should have been made.
     
11. Are self-employed contractors entitled to holiday pay?
    It is possible that a self-employed contractor will qualify for statutory rights as a ‘worker’. Even where someone is treated as self-employed for tax purposes if they are under an obligation to carry work personally and the work is done for someone who is not their client or customer they are likely to be classified as a worker.
     
12. What if the self-employed contractor has never been given any facility to take paid holiday?
    They may bring a claim for accrued holiday pay and if successful it is possible that it will be awarded for the entire duration of their engagement even if it has lasted longer than two years. This is due to the comments made by the European Court of Justice in the case of The Sash Window Workshop and another v King 2017 which suggested where no facility for paid leave had been provided the claim for holiday pay should not be subject to any limitations. The self-employed worker may therefore claim that upon termination all the paid leave that has accrued during the entire engagement falls due to be paid.
     
13. How is statutory holiday pay calculated?
    The WTR refers to a “week’s pay” for each week of annual leave. However, the position is further complicated by the fact that the way in which a “week’s pay” is defined has been found to be contrary to EU law. Under the EU Working Time Directive, the entitlement is to be paid normal pay in respect of the four weeks minimum annual leave. The calculation of what is ‘normal’ must take into account overtime, commission and other payments that relate to the duties that would normally be carried out. The extra 1.6 weeks leave provided for under the WTR do not necessarily have to be subject to the same calculation where the employee has normal working hours and their pay doesn't vary for working those hours.
     
14. How should an employer calculate ‘normal’ pay in practice?
    To comply with EU law the courts have directed that an average should be calculated taking into the regular payments received in the 12-week period immediately before the holiday pay is due. This reflects how average pay would be calculated under UK law in the case of an employee who did not have normal hours of work or where their pay varied.
     
15. Are there any changes planned for holiday pay calculations?
    Yes. The Employment Rights (Employment Particulars and Paid Annual Leave) Amendment Regulations 2018 are due to come into force on 6 April 2020. A key change will be that the 12-week reference period for calculating holiday pay will be extended to 52 weeks. The intention is that this longer reference period will better reflect the pay of those workers whose hours fluctuate significantly over the course of the year such as casual or seasonal workers.
     
16. What if the employee has not been employed for 52 weeks?
    The reference period will be shorter so that just the weeks that have been worked are to be counted.
    If the employee has longer service but there are weeks in which no work has been done the employer should include in the calculation earlier weeks to try and assess the average for the 52 weeks that have been worked. However, that is subject to a rule that account should not be taken of weeks worked over two years before.
     
17. Is it possible to pay a ‘rolled up’ rate to compensate the employee for holiday pay?
    This has been declared to be unlawful by the ECJ. However, at the same time it has been accepted that credit should be allowed for payments made to the employee in respect of holiday pay. This suggests that provided there is a clear agreement with the employee and the amount of holiday pay is identified the employee will have no further claim.
     
18. What percentage of pay should be added to reflect statutory annual leave?
    Some employers will add 12.07% to the worker’s wages and describe this as holiday pay in accordance with the WTR.
    It is based on 5.6 weeks' paid holiday accruing over a year or 52 weeks. Taking these 5.6 weeks from the full year leaves 46.4 working weeks. 5.6 is 12.07% of 46.4, so this figure represents holiday expressed as a percentage of working time.
     
19. Can the 12.07% calculation be used for term time workers?
    This calculation is based on the individual working 46.4 weeks. Where there are weeks during which the worker remains under contract but does no work the calculation becomes inaccurate. This is because the worker’s holiday pay entitlement would increase under the even if no work is done. However, according to the 12.07% rule they would accrue no paid leave if no work had been done. In the case of Harpur Trust v Brazel 2019 it was highlighted that in these circumstances the holiday pay would need to be calculated by reference to average pay over 12 weeks in which work had been carried out.
     
20. Will Brexit make any difference to these holiday pay problems?
    No. Not in the short term at least. The laws regarding the rights to paid holiday will continue to apply as they stand now. However, when the UK is out of the EU it will be free to make amendments to these laws which it could not do whilst a member of the EU.