Holidays and Holiday Pay

by Hazel Phillips

With the memory of snow still fresh in our minds, many employees will start to think of jetting away to somewhere a little warmer and, along with a plethora of diet adverts, the television always seems to start the New Year by overloading us with promises of summer sun. With this in mind, we thought that this would be a good time to review the rules on holidays and holiday pay.

Background

Since the 1st April 2009, all employees (including part time staff) have been entitled to 5.6 weeks annual leave per year. This means that, for someone working a 5 day week, the minimum holiday entitlement is 28 days per year.

Prior to 2007, the statutory entitlement to leave was based on the European Directive on Working Time (“the Directive”) and provided 4 weeks’ holiday or, for someone working a 5 day week, 20 days leave.

The Working Time (Amendment) Regulations 2008 (“the Regulations”) gradually increased this entitlement in order to address union concerns about inequality in holiday entitlements which meant that increasing numbers of people were receiving paid leave on bank holidays in addition to the statutory minimum holiday entitlement.  The increase was sold on health and safety grounds and was aimed at allowing as many as possible to benefit from that widespread practice. 

However, the change did not give an automatic right to have paid leave on bank holidays.  When introducing the increase the Government recognised that it is vital for some businesses to operate on public holidays. The compromise was to make it possible for employers to ask staff to work on bank holidays provided that employees were allowed to take paid days off in lieu at some point during the year. To pacify employers, who were mostly against any increase, the rules still allow absence on bank holidays to count as part of an employees’ minimum entitlement. 

The change resulted in a widely reported ‘increase’ that many employees did not actually see because they already received 5.6 weeks’ paid leave by having paid leave on bank holidays.

When holiday can be taken

Before an employee can take any holiday at all, an employee has to give notice. The minimum requirement for notice is that it is twice the length of the holiday that the employee wants to take. In simple terms, if an employee wants to take a week off, he or she needs to give his/her employer two weeks’ notice.

The employer can refuse to allow a worker holiday on the dates requested provided the employer tells the employee that they cannot have the time off the same number of days before the intended holiday date as the holiday that the employee wanted to take. In other words, if an employer wants to prevent an employee from taking the week off that he or she has requested, the employer has to give the employee one week’s notice of this.

There is no requirement for the employer to act reasonably when considering requests for holiday and the employer does not have to consult the employee before turning down a request. Having said that, an unreasonable refusal could potentially give rise to a constructive unfair dismissal claim.  The situation would be even worse for the employer if the refusal could be said to be tainted by discrimination.

Having a written policy, or clauses in employment contracts, setting out how holiday requests will be dealt with can help to counter-act such claims by ensuring each request is dealt with in a similar way.  The other advantage of a written policy is that the employer can impose its own rules to dictate when holiday can and cannot be taken and how much notice an employee is required to give before any intended holiday dates.

Asking for more notice can give employers the time that they need to prepare for and accommodate absence. Being clear as to the limitations on an employer’s ability to accommodate staff absence can also be particularly valuable if a business needs ‘all hands on deck’ at peak times of production or demand.  An employer can use the statutory rules to achieve the same result but it is more difficult to force a staff member to take his or her holiday at a particular time unless such rules have been agreed in writing. Rules are, therefore, vital for any business which wants to shut down for Christmas or during the summer.

The most common approach to dealing with holiday requests is to set a maximum absence level and to agree requests on a ‘First Come, First Served’ basis. However, this can only work if the employer strictly enforces the rules.  While it might be difficult to say no to the excited employee who has just booked his or her dream holiday, employers should regularly remind staff of the need to get permission before paying any money and should stand by the rules in order to avoid creating favourites. 

At the same time, employers should always be wary of using a blanket policy without considering requests on a case by case basis. There needs to be room to exercise discretion within any policy and special circumstances should always be considered before a request is refused. Even though refusal may well be in line with the Company’s policy because, for example, someone else has already booked those days as leave, but if the refusal could impact upon other rights an employer should seek legal advice before enforcing the rules. For example, employers should be alive to the fact that discrimination could be implied if someone were asking for holiday to participate in a religious event. 

How holiday entitlement is calculated

For anyone working a 5 day week, calculating holiday is easy. If staff are working variable hours or on part time contracts, ensuring that they get their full entitlement can be more tricky. In order to assist employers, there is a useful holiday calculator tool on the Business Link website.

However, for those who like to do things the ‘old fashioned’ way, holiday for staff working part-time is calculated pro rata. Basically, the number of days worked per week is multiplied by 5.6.  Employees then receive that number of days leave paid at their usual daily rate. For those with variable hours, the employer needs to do more of a percentage based calculation.

Employees accrue holiday during the first year of employment at a rate of 1/12th of their annual entitlement each month. However, it is important to remember that after the first year, the only other time that this ‘accrual’ applies is the year of termination.

This means that an employee with more than one year’s service can take all of his or her annual leave in the first few months of the holiday year should they wish to do so and if permitted by his or her employer’s rules on when holiday can be taken.

Women also accrue holiday during ordinary maternity and additional maternity leave even though they are not working for the employer during this period.  Technically speaking women on maternity leave may lose some of their holiday entitlement if their leave extends into a new leave year, as the Regulations still do not permit statutory leave to be carried over into the next leave year. However, for a woman to lose her statutory holiday entitlement in this way simply through the taking of maternity leave is discrimination and so it is not advisable to adopt such a practice.
 
As we have previously reported, although unpalatable, employees also accrue holiday during periods of sickness absence.

Carrying holiday forward

Many employers have faced the problem of the employee who finds him or herself unable to take all of his or her leave before the end of the holiday year. The Regulations still prevent employees from carrying over statutory holiday into a new holiday year. However, the decisions in the Stringer and Peveda cases (which we have reported in previous bulletins) mean that this absolute prohibition has been eroded, particularly for employees who are prevented from taking leave by sickness absence.

In truth, the prohibition may well disappear in its entirety in the coming year. However, for the time being, those who are fit and well enough to do so cannot carry any of the 5.6 weeks’ leave forward; they still take it or lose it.

The Regulations also still say that an employee can only be given payment in lieu of holiday on termination. Again, this rule is likely to change following the case law developments last year.  However, employers have always been able to pay in lieu of any contractual holiday which is given to staff in addition to the 5.6 weeks’ minimum.  Having said that, there is no legal requirement to do so and if an employer wants to, the take it or leave it rule can be enforced against those who do not get organised enough to take their extra days.

Holiday pay

The rules regarding holiday pay have not changed, employers should receive their normal rate of pay during any period of absence.

Although once common in industries like construction and logistics, ‘rolled up’ holiday pay is no longer allowed. Employers must pay staff while they are away and not just add the equivalent figure to an employees pay throughout the remainder of the year. Nor can employers agree a ‘standard’ holiday rate for staff.  This approach is sometimes adopted to give a fair rate of pay when shift patterns result in employees receiving different salaries.  Although some staff will get a higher rate during their holiday, some staff inevitably lose out by receiving less than their normal rate.  The Regulations state that employers must calculate what the employee’s average rate of pay was during the 12 weeks prior to the holiday period in question and pay that amount during holiday even if that means every member of staff receives a different amount on each occasion that they take a holiday.

Finally, following the case of Stringer, employees who request holiday pay while absent on sick leave may be entitled to receive it in future even though the employee may not be fit to return to work.

As can be seen the rules relating to holiday absence are ever changing and complex. There will undoubtedly be developments in the coming year related to the relationship between holiday and sickness absence and possibly further a field. It will be one of the areas employers will need to watch with care particularly if considering altering terms and conditions to give more flexibility, or to impose tighter controls on when holidays are taken in these difficult economic times.

February 2010

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