Getting away from it all

Adam Bernstein
Wednesday, September 23, 2020

Generous holiday entitlement is one of the most valuable rewards an employer can give and while the law demands a statutory minimum, many employees receive a contractual right to more. But despite the law being quite clear on the subject, and been clarified in recent years by test cases, employers still make plenty of mistakes in calculations of leave and pay.

First principles

Mark Stevens, a senior associate in the employment team at VWV, says that there are a number of points that employers need to be aware of when handling requests for leave.

First off, Stevens says that all workers are entitled to 5.6 weeks’ annual leave per year which amounts “to 28 days per year for those who work five days a week, but for a part-time worker, their allowance is reduced pro rata”. To illustrate, an employee on 4 full days a week would get 4/5ths of 28 days or 22.4 days leave.

It’s worth noting, as Andrew Rayment, a partner at law firm Walker Morris LLP, points out, “that of this 5.6-week entitlement, four of the weeks are granted by European law (known as Euroleave) and an additional 1.6 weeks were granted by the UK’s own Working Time Regulations 1998.” Further, workers start building up holiday entitlement as soon as they start work.

For all workers, public holidays can count towards their entitlement to annual leave. In terms of shift workers, Stevens says an employer must calculate leave based on the average shifts worked during the 52-week period immediately prior to the requested leave period. (This period was 12 weeks but increased to 52 weeks on 6 April 2020).

Interestingly, there is no statutory right to specific bank or public holidays. However, Stevens warns that “if the contract says that staff are entitled to ‘28 days holiday plus bank or public holidays’ then employees are contractually entitled to take bank or public holidays off”.

It’s also worth remembering that part-time workers who have a contractual right to bank or public holidays have a right to a pro-rated equivalent of their full-time colleagues whether or not they work on bank/public holiday itself.

But there is another consideration pointed out by Rayment: “Employees continue to accrue paid holiday, as if they were at work, throughout maternity, paternity, adoption and shared parental leave (known as family leave). Employees may choose to take this holiday before or at the end of the family leave period or a mixture of both.” He adds that employers may have to allow the employee to carry over into the next leave year more annual leave than is usually allowed to ensure that the employee does not lose any of the holiday accrued during the leave.

Calculating pay

As for pay, Stevens says employees are entitled to a week’s pay for each week of annual leave: “For employees with normal, regular, hours of work this generally means their basic salary without any bonus or irregular payments being taken into account.”

This becomes more complicated where an employee’s pay fluctuates. In these circumstances Stevens says holiday pay will be based on average pay during those normal working hours over the previous 52 working weeks (again, as from 6 April 2020 – it was 12 weeks before that date).

It’s a given that basic pay is used to work out holiday pay, but what about overtime? The answer is, says Rayment, that “the calculation must use an employee’s ‘normal pay”’. So, if an employee normally works overtime, it should be included in the calculation of holiday pay.

Contractual overtime is what an employer is contractually obliged to offer and that which employees are required to work; it must always be included in holiday pay. But as Rayment explains: “The Employment Appeal Tribunal has made it clear that regular overtime that is not guaranteed, but that employees are expected to work if and when it is offered, must also be included.”

But what of voluntary overtime? Here Rayment says that in simple terms, and as a general rule of thumb, the more regular the voluntary overtime, the more likely it should be included in holiday pay.

Looking at another hazard, Stevens says employers should exercise caution when dealing with an employee whose pay includes commission. He warns that “the European Court of Justice (ECJ) has previously found that a salesman paid partly by regular salary and partly by commission should have been paid holiday pay that included commission”. And to emphasise the point, Rayment says that another Court of Appeal decision “made it clear that results-based commission should be taken into account when working out holiday pay”.

Stevens also details another case of interest. “When the right to annual leave was first introduced, casual workers with irregular working patterns were often given ‘rolled up holiday pay’ – their holiday pay was included within their regular wages payments. The ECJ, however, ruled this unlawful as it meant that a worker received no pay while they were on holiday.”

To this mix comes another recent case where those who work part of year became entitled to the equivalent of a ‘week’s pay’ for each week of leave. As we’ve seen, for workers that do not have normal working hours, a week’s pay is the worker’s average weekly pay in the 12 weeks before the first day of holiday, excluding any weeks in which no remuneration was payable. But as Rayment highlights, “the worker argued that there was nothing in the law that required a different approach where, as in her case, a worker does not work a full year” – and the Court of Appeal agreed.

Coronavirus has highlighted a number of issues revolving around sick leave. Leaving entitlements to one side, Stevens notes that the ECJ has previously held that a worker who becomes unfit for work during a period of their statutory leave must be entitled to reschedule the period of their planned leave that coincided with the period of their sickness. “In the ECJ’s eyes,” he says, “an employee cannot be unfit to work and on annual leave at the same time.”

It’s just as interesting that he adds that “an employee continues to accrue statutory
holiday during sickness absence, even if they
are absent for the whole holiday year”.
This means that an employee who has exhausted their sick pay entitlement could request to take paid holiday during their sickness absence.

To this, though, Rayment adds that employers shouldn’t lose sight of workers who have been unable to take their holiday because they’ve been on long-term sick leave. He reminds that workers are entitled to “carry over four weeks’ unused holiday unless the employer allows more to be carried over”. He adds, however, that this holiday must be used within 18 months.

And on top of this, another trap awaits employers who engage ‘self-employed’ contractors – drivers, consultants or freelance designers possibly. As Rayment points out, the ECJ held in a 2017 case that “anyone with ‘worker’ status must be able to carry over paid annual leave if they have not had the opportunity to take it or have not taken it because they have been regarded as ‘self-employed’ and therefore didn’t think they could get paid for holidays.”

But apart from the normal, run of the mill, holidays, there may be, as Stevens has seen, special requests for a honeymoon or a ‘once in a lifetime’ trip, which may ordinarily breach company policy for whatever reason. In this instance, Stevens’ advice is clear: consider requests on a case-by-case basis. It’s his view that “in situations such as this an employer may wish to exercise their discretion to allow a longer break than is allowable under the rules. Alternatively, an employer could allow the employee to take some extra time as unpaid leave”. The key, he says, is to not set a precedent.

Employer salvation?

But what about an employer’s options? Here Stevens says that where an employee wants to take holiday when its inconvenient for the business, “their employer can serve a counter-notice on them stating that their holiday request cannot be accepted”. However, this counter notice must be given at least as many calendar days before the proposed leave is due to commence as the number of days which the employer is refusing.

And as for unused statutory holiday, it ordinarily expires at the end of the holiday year. This means, says, Stevens, that an employee is not entitled to carry statutory holiday over or to be paid in lieu of unused statutory holiday. However, it’s important to note that the government has introduced a temporary new law because of the Covid-19 pandemic. This allows employees and workers to carry over up to four weeks’ paid holiday into their next two holiday leave years.

With the complexities established, what penalties await employers that break the law? Rayment says it’s simple: “Workers who believe they have been underpaid holiday pay can bring Employment Tribunal claims for back-payment.”

But there is some relief here for employers, says Rayment, “the Deduction from Wages (Limitation) Regulations 2014 imposed a two year back pay limit on deduction from wages claims”.

In summary

The law surrounding holiday entitlements is a quagmire for employer and employee alike as case law has shown. That said, employers ought to take good advice if in any doubt about their obligations and employees rights because with the removal of tribunal fees in 2017, there’s little to stop an aggrieved employee bringing a claim. 

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