Holiday Pay Advice

Holidays and sickness, holiday forfeiture, holiday pay calculation

Holiday pay advice is complex since it is subject to a huge amount of case law and has seen some significant changes in the last few years. There could well be more changes to come with recent judgments being the subject of appeals. Such uncertainty is a cause for concern for employers and we would recommend that you always seek guidance from a competent HR Consultant experienced in holiday pay advice. Here are a few recent examples of changes that employers should consider.

Holiday pay advice - Holidays and Sickness

It is well established, that holiday entitlement continues to accrue when an employee is absent due to sickness. If an employee requests to take annual leave, whilst off sick, that is perfectly permissible. However, if an employee does not request to take holiday, it continues to accrue to be taken once they have returned to work, or be paid for upon termination of employment.  If the employee is prevented from taking the holiday within the holiday year due to sickness, an employer has to allow the employee to carry forward the holiday into the subsequent holiday year.

Recently the Employment Appeal Tribunal (EAT) overturned the Tribunal’s decision that an employee could not claim for holiday for accrued while he had been absent from work in a previous holiday year due to an accident. The EAT concluding that there is no requirement for a sick employee to take annual leave during the leave year or to show he was unable, by reason of sickness, to take the leave.

The EAT went on to consider whether accrued holiday should carry forward indefinitely. It concluded (taking into account EU case law) that national law is not required to allow holidays to carry forward without limit and consequently effectively rewrote the Regulations. It determined that a worker must take annual leave within 18 months of the end of the leave year in which it was accrued. After the 18 month carry over period any outstanding untakenleave is presumably forfeit.

The effect in this case was that the Claimant was entitled to payment in lieu of annual leave for 2012 but not for the holiday accrued in 2010 and 2011. Permission has been granted to appeal to the Court of Appeal and we wait to see if an appeal is lodged and the outcome of any such appeal.

Holiday pay advice - When are holidays forfeited?

Providing there is no contractual term that provides for holidays, above the statutory minimum, to be carried forward into the subsequent holiday year, we believe that holidays would be forfeit in the following scenarios:

  1. A worker (with no long term absence) does not apply or take his/her full holiday entitlement in the holiday year.
  2. A worker applies to take his holiday in the final month of the holiday year but because that month is the employer’s busy period holidays are not permitted to be taken in that month, the holiday request is refused.
  3. A worker applies to take his holiday in the final month of the holiday year but because holidays are granted on a ‘first come, first served’ basis and to maintain minimum staffing levels/operational requirements due to other employees having already booked the time off, the holiday request is refused.

The downside for employers is that if you deprive a worker of carryover of the holiday entitlement, the worker might challenge that decision before the Employment Tribunal and the reality of the situation is that it will be for an Employment Judge to determine on the facts of each and every case. You should therefore seek specific advice to make sure that all relevant facts are taken into consideration.

Holiday pay advice – holiday pay and overtime/commission

In 2014 the European Court of Justice (ECJ) decided that, where the amount of commission is fixed in the employment contract, payment for annual leave must include an element for commission

More recently the UK Courts ruled on situations where employees are required to work overtime, but their employer is not obliged to offer overtime as a minimum. In other-words, the overtime was not guaranteed as part of normal remuneration. The ruling was that this so called non-guaranteed overtime should be reckoned as part of normal remuneration when calculating holiday pay.

However, please note that this only applies to the basic 4 weeks’ leave granted under the Working Time Directive (Regulation 13 of the Working Time Regulations), NOT the additional 1.6 weeks under the later regulation 13A of the Working Time Regulations.

Although the Employment Appeal Tribunal gave permission to appeal to the Court of Appeal, it is envisaged that there may be a floodgate of claims from workers seeking to recover the series of underpayments to their previous holiday pay payments. Claims for arrears of holiday pay will be out of time if there has been a break of more than three months between successive underpayments (subject to the reasonable practicability test). Furthermore, so that employees are prevented from making claims going back years, the Government has also introduced Deduction from Wages (Limitation) Regulations 2014 which limits all unlawful deduction claims to two years before the date the claim is lodged. This became effective to Employment Tribunal claims from 1st July 2015.

Until the outcome of these cases is finally determined whether by the Court of Appeal, Supreme Court, or through new legislation, we recommend that employers make a note of any employee’s request for either holiday pay to include overtime or any underpayment from previous holiday pay and explain that you will act appropriately, once the legal position has been definitively determined.

The advice and comment in this article is not meant to be an authoritative statement of law. The articles and summaries should not be applied to any specific set of facts and circumstances without seeking further advice. Whilst every care is taken to ensure that the content is correct Sentient cannot accept responsibility for the accuracy of statements made nor the result of any actions taken by individuals after reading such.