A Quick 101 Guide to Holiday Pay

The common adage in weightlifting circles is that the most important part of exercise is not the effort you put in at the gym, but the rest you take afterwards. The most commonly accepted theory for why we sleep is it gives our bodies and brains time to recharge, to strengthen the connections between our braincells, and to repair damage to bodily tissues. And in 2017, hygge was all the rage; a Danish term derived from the Norwegian word hugga, meaning to comfort (and also where we get the verb ‘to hug’!), which emphasises peace, comfort, and taking time out of your busy life for the small things.

All that to say, despite living in a modern culture of hustling, we know rest is important. Science proves time and time again that the human body needs rest – with drastic consequences if you don’t. That’s why the Working Time Regulations (WTR) specify that an employee is entitled to 5.6 weeks a year paid annual leave.

However, the wording of the WTR allows for some serious confusion. What exactly is meant by a week’s work if the employee is on something like a zero-hour contract? How is holiday time supposed to be paid? How much do you pay someone to take annual leave?

In this blog post, we’ll cover how holiday pay works – just in time to get some in for yourself to enjoy the last of the warm summer days before autumn rolls in.

How to Calculate a Week’s Work

You are entitled to 5.6 weeks a year of paid leave, and you begin accruing holiday from the first moment you begin working with a company, no matter whether you’re on a temporary contract. Whilst that might sound odd at first brush – surely holiday should be earned? – this is part of the directive because of short term contracts, who may not work long enough to accrue any holiday under the old rules’ 13-week qualifying period.

woman calculating holiday pay

Consider, for example, broadcasting or television crews, where 10 weeks is long enough to film a feature-length production, and contracts are secured on a production-by-production basis. Under this system, someone like a boom operator would never accrue any leave. (This exact point was argued by a Broadcasting union in the European courts and won, hence the removal of the qualifying period)

The first thing to note is holiday pay should not just be based upon the base pay for an employee. For example, workers who earn extra on commission or rely on overtime pay may find themselves unable to take leave if the payment is just calculated on their base pay; ergo, commission and overtime payments count as part of a week’s pay.

If the worker has a regular shift – for example, they are a 9-5 office worker who works 5 days a week – then calculating a week’s pay for them is relatively straight-forwards. But what if you employ people who are on zero-hour contracts, or shift patterns that don’t neatly line up with a week, or their pay is not so easily calculable for some other reason?

The WTR has provisions in place for this exact reason, as does the Employment Right’s Act as amended in 2018. It stipulates that the number of hours an employee works a week can be calculated by averaging out the number of hours the employee has worked in the past 52 weeks. So if the employee in question has worked 1040 hours total in the past year, an average week’s work is represented as 1040 hrs/52 wks = 20 hrs/wk.

And if they haven’t worked a year? Then the regulation states an average must be taken of the number of hours they have worked, so that their pay continues to be reflective.

Rolled up Holiday Pay

It might be the instinct of an employer to spread holiday pay over a 12-month period, rather than paying it when holiday is taken. Especially in the case of those on zero-hour contracts; an employer might argue a day when the employee isn’t called into work is rest, and therefore the administratively sensible thing would be to just pay holiday alongside their normal pay.

For instance, Gus – our Highlands train driver from the Annualised Hours post – we figured out he has 140 hrs of leave, and since he’s paid £10 an hour for his work, that means he is owed £1,400 holiday pay over 52 weeks. What’s supposed to happen is for every hour of leave Gus takes, he gets paid £10 for it in his next pay cycle. For example, Gus decides he wants a few cheeky days off to watch the football in July and takes three 5 hr days off. On his payslip for July, he should therefore get 15 hrs of holiday pay (or 15 x £10 = £150).

Instead, Gus’ company might decide to split the £1400 by 12 and pay an equal amount of it to him every month as part of his pay. This means that any holiday Gus takes off does not get paid to him when he takes it. This is called rolled-up holiday pay and is actually not legal under the Working Time Regulations, because it can incentivize not taking time off. The Working Time Regulation states that holiday pay must be paid when holiday is taken.

Maybe it’s a week Gus wants off to sleep off his football hangovers, but he can’t afford to take five days off because it would, ultimately, leave him financially worse off for July. Annual leave is supposed to be there to provide employees rest – if they can’t afford to take time off, then they can’t get the rest that they deserve.

This is backed up in cases involving holiday pay;  in the case of Munro V MPB Structures Ltd [2002], the Court of Appeals upheld the decision that rolling up holiday pay violated the right to be paid for holiday when it is taken – and when it came before the European Court of Justice (Robinson-Steele V R.D. Retail Services Ltd [2006]), they too upheld that case. The official stance now is any contract containing clauses about rolled-up holiday pay must be renegotiated.

When can I take leave?

An employee has a legal obligation to propose leave twice as long in advance than the leave to be taken is long. For example, a day’s leave must be proposed at least two days in advance, two days must be four days in advance, and a week must be two weeks in advance. It should be noted than an employer doesn’t have to honour this request. If it would be an operational burden, it’s perfectly acceptable for an employer to deny leave. (If the employer takes leave anyway, this is subordination; but that’s a topic for another day.)

What about employers? Well, they can state leave must be taken on particular days, for example, over the holidays when operations were closed. This has been upheld in the Supreme Court, where oil-rig workers argued they shouldn’t have to take leave when onshore (as they worked 2 weeks offshore on the rig, and two weeks onshore) – the court replied that no, it was perfectly acceptable for their employers to force them to take annual leave during onshore field breaks.

Unfortunately, this does take into account the possibility that a business could shut down operations for five weeks of the year and then provide no leave at all through the rest of the year. A breach of the health and safety objective of the directive? Perhaps, but so far, no legal battles have occurred on those grounds.

When leave can’t be taken

There’s a final thing to talk about in regard to holiday, and that’s what to do if an employee doesn’t take their leave. This was a question especially pertinent during the lockdowns, furloughing and so forth of the coronavirus pandemic.

It is up to the employer to encourage their workers to take their leave, as part of their obligations to look out for employee wellbeing. If an employee fails to take their leave, however, they cannot simply carry their leave period forwards or accept payment in lieu. In essence, if Gus had three weeks leave left at the holiday period, and he refused to take them, his employer can’t just pay him instead, nor can he simply get eight weeks leave next year.

But what if they can’t take leave due to medical reasons, such as taking time to recover from an operation of extended illness, or hiding from a global pandemic? In this case, the employee can carry their leave forwards into the next year. So if Gus had three weeks leave left but was involved in a bus crash and therefore couldn’t take the leave, then in the next year, he would be entitled to take those three weeks on top of his usually permitted 5.6.

The rationale for this is a person isn’t really able to benefit from rest if they were healing or recovering from sickness – ergo they were entitled to more rest time.

OK, but what about being unable to take leave for another reason, like employment termination? Let’s say instead of being in a bus crash, Gus was simply made redundant. In this case, Gus would be entitled to payment in lieu. In short, his employer could pay him instead.

One final note – an employee is also entitled to take annual leave when on sick leave, or visa-versa, convert holiday leave into sick leave. For example, if an employee is ill and needs a top-up to their income because statutory sick pay isn’t enough, they have the right to request that – and if they book holiday time off but have to take sick leave instead, they are entitled to rearrange the holiday.

So there you have it; a quick guide on holiday pay.

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Here to Help

If you have any further questions about holiday pay, don’t hesitate to get in contact with us – our phone lines are open 24/7 and we would be more than happy to help. We also have comprehensive, up-to-date annual leave policies available in our toolkits at a competitive price.

We are here to provide full advice, support, and guidance. We can advise in any HR or Employment Law matter: you can contact a member of our team on 0333 006 9489 or [email protected]

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