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29th January 2014

Roll up, Roll up for Holiday

Accumulation on holidayThe law..

..requires you to provide each employee with 5.6 weeks holiday a year but what happens when an employee works irregular hours and, especially, irregular weeks?

The simple solution..

.. is to add a percentage to the hourly rate to enable the employee to save up some cash to take holiday at, most probably, a time when you do not require their services.

European complications

The simplicity of this solution is clouded by a decision by the European Court of Justice which states that holiday pay must be “a payment in respect of a specific period during which the worker actually takes leave”. This implies that the employer must hold the holiday pay back, ascertain when the worker will take leave, and then pay him the holiday when he takes it. Wholly impractical (or at least an administrative nightmare) in many cases.

The European case arose partially because of confusion as to whether holiday pay had been included in the rate because, if it had not, then the workers in question were entitled to holiday which had to be paid in addition to what they had already earned.

Practical remedy – rolled up holiday pay

The answer, where an employee (or worker) has intermittent hours, days or weeks, is to have a specified hourly rate which excludes any holiday payment. For adults on the National Minimum Wage (NMW) that would be £6.31 p.h. Then a holiday pay element needs to be added, namely a percentage which, to satisfy minimum requirements, is 12.07%. So for an adult on £6.31 p.h. that would be 76p meaning what you actually pay the employee is £7.07 p.h. What is critical is that you are completely transparent.

The risk

Rolled up holiday pay does not truly satisfy the European Court requirement. But, provided in practice that you allow the employee at least 5.6 weeks per year where they are not working,, what can an employee do? They have been paid in full for the holiday. The holiday is an entitlement, so a period of leave cannot be denied to him or her but, if you haven’t denied it, what could be their complaint?

A risk may arise though if you advertise a job at £7.07 p.h. when you only intend to pay the NMW. In those circumstances you could subsequently face a claim for 12.07% on top of the £7.07 p.h. and a Tribunal would probably insist it be paid. Such disputes typically arise if you “fall-out” with the employee.

Key points

  • Quote only the lower rate in any recruitment (although you can say holiday pay will be added)
  • Make it clear in the written particulars / contract of employment that there is an addition of 12.07% on the hourly rate for holidays – not that such pay is included in the rate.
  • Specify the uplift in pay slips
  • Specifically encourage (in written form) employees to take their holiday so as to avoid being accused of denying their entitlement.

Malcolm Martin – QCS Expert Human Resources Contributor

*All information is correct at the time of publishing. Use of this material is subject to your acceptance of our terms and conditions.

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