The government has recently published a policy paper titled “Smarter regulation to grow the economy”. This paper includes proposals to permit rolled up holiday pay and to create a single entitlement for 5.6 weeks’ leave.
Rolled up holiday pay used to be quite common for casual workers and those with unpredictable or variable working hours. This system involved including holiday pay within a worker’s hourly rate of pay as opposed to paying the worker when the holiday had been taken. In 2006 a European Court of Justice case Robinson-Steele v PD Retail Services and other cases decided that this was not permitted. One of the reasons for this is that it was found that this system would discourage workers from actually taking days off. This proposal has been welcomed by many as in practice, despite it technically being unlawful, many employers have continued to pay employees in this way as the calculations are simple and can be done using payroll software with ease. The current rules are so complex it may be that workers are not receiving their full entitlement.
The second proposal relates to the formulation of the 5.6 week entitlement to leave. Currently, workers are entitled to four weeks of leave by virtue of the EU Directive and a domestic entitlement to an extra 1.6 weeks. These two forms of leave are currently treated differently. In relation to pay, the first four weeks must be paid at the same rate as a day of work whereas the additional 1.6 weeks attracts only a basic rate of pay. By putting both forms of leave on the same footing and stating that workers have 5.6 weeks of leave, and removing the distinction, it is presumed that one rate of pay will apply. If it is basic pay, then workers will receive less money and if it is the equivalent to a day of pay then costs to employers may increase. It is unclear which will apply and the government is seeking employers views on this topic.
The rules surrounding holiday pay are extensive and complicated and are contained in a tangled web of case law and legislation (both domestic and EU). The most recent major ‘clarification’ came as a result of the Supreme Court case Harper Trust v Brazel which confirmed that part year workers are still entitled to 5.6 weeks leave.
There will be a period of consultation regarding these proposals which will then need to be put into legislation- this will happen when Parliamentary time allows. There is a long way to go before these rules are in place, but the proposals may be welcome news to employers.
If you have any questions on any of the issues raised in the above article, please contact Natalia Milne.