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Employment Law Services Ltd

Holiday Entitlement and Pay

Until the introduction of the Working Time Regulations in 1998 holiday pay, and holiday pay entitlement was purely a matter of contract between the employer and employee. Technically until then there was no statutory right to holiday, or holiday pay.

The Employment Rights Act 1996 lists among the pieces of information that MUST be given to the employee in writing their holiday and holiday pay entitlement. This information must be given to the employee no later than 2 months after starting employment. Clearly the best approach is to ensure that this information is agreed with the employee in the written contract of employment (see link PAYG contract of employment).

From the 1st April 2009, under the Working Time Regulations (as amended), workers (which involves full-time & part-time employees, agency workers and most self-employed freelance workers) have the right to 5.6 weeks (capped at 28 days) holiday per year. They are also entitled to payment for any accrued but untaken statutory holiday pay entitlement on termination of employment. The employer and employment are entitled to agree an entitlement above this amount, and for senior or long-serving staff that would usually be the case. However, no lower entitlement can be agreed.Many people already have contractual entitlements over 28 days.

The recent increases in the statutory entitlement have not changed their contractual entitlement, and employers certainly cannot unilaterally reduce an employee’s paid holiday entitlement.

For an individual that starts work part way through the employers usual holiday year the paid holiday entitlement will be based on the period between the date of commencement of employment and the employer’s holiday year end.

During the first year of employment paid holiday entitlement will accrue monthly, in advance, at the rate of one twelfth of the annual entitlement. E.g.A full time employee in the eighth month of employment will have accrued 19 days paid annual leave. This is based on an annual entitlement of 28 days X 8/12ths, totalling 19 days (18.67 rounded to nearest 0.5day). A part time employee who works half the “normal” full time hours (over 5 days per week) in the eighth month of employment will also have accrued 19 day paid leave. This is based on the same calculation as above. But as he/she only works half the full time hours the amount of the holiday pay will be half that of the full time employee in example 1 above.

Workers are obliged to give notice of intention to take holiday. The statutory requirement is that they give at least twice as many days in notice as the number of days they wish to take as holiday. So, if a worker wants to take 2 days holiday he/she only has to give 4 days notice. Clearly this may be inadequate for the employer that needs to arrange cover during the holiday. Therefore if the employer wants a longer period of notice for holiday, it must be stated in the contract of employment (link PAYG contract of employment). Similarly, there are provisions under the Working Time Regulations that enable employers to require their staff to take holiday, by giving them the appropriate prior notice. This may be set out in a contract of employment. This typically happens when an employer has a "shut-down" period, such as over the Christmas period, or during the summer months.

If there is to be a regular ,set period that the employer needs its staff to take as holiday this should be specified in the contracts of employment of the affected staff. 

Holiday entitlement is easy to calculate for workers whose hours of work in a week do not vary. Their weekly holiday pay entitlement will be the same as their normal weekly pay. For those whose weekly hours vary the entitlement under the regulations is to calculate an average hourly rate over the previous 12 weeks. Normally any “overtime” hours worked should have the rate for those hours set at the normal hourly rate when calculating the holiday pay entitlement.

The courts have given a ruling making clear that the calculation of holiday pay must include any overtime that the employee normally receives. For those people that have an income which varies due to commission payments or similar payments the amount of holiday pay they are entitled to is to be calculated by reference to the average amount in the previous 12 week period.

The provisions on Bank Holidays need to be stated in the contract of employment. Bank holidays may be included in the 5.6 weeks leave entitlement (since 1st  April 2009). Ultimately the treatment of bank holidays is a matter that must be clearly addressed in the contract of employment.

The European Court of Justice has given a ruling that the right to paid leave, (holiday pay), is NOT automatically terminated at the end of any set leave year for any worker that has been absent from work for any part of, or even for the whole of the leave year in question. Typically the reason for a person "losing" holiday is when they have been ill during a planned holiday period. The practical effect is that workers that have been absent for the whole of a leave year will retain the right to the paid holiday that was accrued during that absence. It remains to be seen just how the courts and Government will respond any further to this development.

The European Courts have also given a ruling which has an impact on those businesses and individuals that receive commission payments (which can result in the amount of income each period varying). In such cases an individual will not normally be able to earn commission if they are on holiday. The European Court has noted that this may deter people from actually taking holiday as it will have a detrimental impact on their subsequent income. Employers therefore need to address this within their policies and procedures, in particular on how and when to make commission payments, and how much to pay in respect of commissions in a period after the individual returns from holiday. Employers need to address this within their own polices and procedures at least until this issue is sorted through amendments to the Working Time Regulations.     

 

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