Employers Questions - Holiday Rights

Q1:I have been told that my full-time employees are entitled to 20 days’ holiday each year. I have just recruited a part-time employee who works 2 days per week and she is claiming that she is also entitled to 20 days' holiday each year. Is this right?
Q2: Is a worker permitted to take all of his/her statutory annual leave towards the beginning of the leave year? We have had one or two problems with employees doing this and then leaving and owing us money.
Q3: I have heard that even if an employee is off sick for a whole leave year he or she will still be entitled to statutory annual leave for that leave year. Is this correct?
Q4: Do I have to ensure that my employees take their statutory annual leave?
Q5: We have a provision in our employees’ contracts of employment allowing them to carry over not more than 5 days of their holiday entitlement into the following leave year. Is this allowed under the regulations?
Q6: Can I buy back holiday from my employees should they wish to exchange their holiday entitlement for cash?
Q7: We have lots of employees who work and are paid for, overtime. When calculating holiday pay, do I calculate their entitlement on their basic salery or the amount they actually receive, i.e. inclusive of overtime payments?
Q8: Is a worker entitled to a payment in lieu of unused statutory holiday on the termination of his/her employment?
Q9: We have a policy whereby employees are entitled to an additional day’s holiday for every 5 years of continuous service with the Company. Is this lawful?

Did we answer your question? These questions will be updated periodically. If you would like to see an Employers Question featured here, email it to us at info@rawlisonbutler.com. Please note, we cannot answer your specific legal queries by email.

If you require legal advice on this or any other employment law issue, please contact Tony Hyams-Parish or your usual contact in the employment team at Rawlison Butler LLP.

This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.

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Answers to questions below, please click on the questions above to be directed to the correct answer.

A1: The Working Time Regulations 1998 (WTR) provide that a worker is entitled to four weeks' statutory annual leave. Although the WTR do not define what constitutes a week's leave, the DTI has indicated that it should be the same amount of time as the working week. Therefore, in the case of a full-time worker who works five days each week, his/her statutory holiday entitlement would indeed be 20 days a year. On the other hand, the entitlement for a part-time worker who, as in your case, works 2 days a week would be 8 working days a year. Your employee’s assertion is not correct, unless of course the 20 days have been specifically agreed in her contract of employment with you.

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A2: Technically, under the Working Time Regulations 1998 (WTR), a worker with more than one year's service can take all of his/her statutory holiday at the beginning of the leave year.

You could deal with your particular problem in a number of ways. You could draft specific clauses in your contracts of employment which state when leave can be taken and what notice must be given by the employee. Alternatively, and in the absence of contractual agreement, you could rely on the notice provisions contained in the WTR. These state that a worker must give notice of at least twice the period of the leave to be taken. You may then, by issuing a counter notice within a period equivalent to the period of the leave requested, refuse the worker permission to take the leave.

Clearly, if an application for leave is refused alternative dates will need to be agreed. By using the notice provisions and your right to refuse the worker permission to take leave, you may be able to prevent your employees from taking all of their holiday at the beginning of the year or at least ensure that it is better spaced out in the holiday year. Please bear in mind that your right to refuse a request to take annual leave must not be exercised unreasonably and you should be able to give legitimate business reasons for your refusal.

The situation is different in respect of employees in their first year of employment with you, who are entitled to take only the holiday entitlement that they have accrued to date. In the first year of employment, holiday leave will accrue at the rate of 1/12th of a worker's annual entitlement on the first day of each month of the year. Therefore, a worker who has started his/her third month of employment will have accrued a quarter of his/her annual entitlement and thus will be entitled to take one week's leave.

To avoid the problem of employees owing you money because they have taken more holiday than they are entitled to when they resign, a suitable clause can be drafted into your contracts of employment permitting you to claw this back from their final salary when they leave.

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A3: The decision in a case heard by the Court of Appeal in 2005 (Commissioners of Inland Revenue v Ainsworth and others) means that employees are not entitled to claim paid holiday leave during a period of long-term sickness absence. What constitutes ‘long-term’ for this purpose is not entirely clear, although it has been held to include sickness absence for a year or more.

In any event, where an employee is not absent for long-term sickness you can still provide that holiday entitlement over and above the statutory entitlement of four weeks, does not accrue during any periods of sick leave.

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A4: Generally no – because there is no positive obligation on the employer to ensure a worker takes annual leave under the Working Time Regulations 1998 (WTR), you must simply ensure that workers can take holiday entitlement and there is no express obligation to make sure that workers do in fact take holiday leave. However, in an ECJ decision in 2006 it was held that it is not sufficient for an employer to take a passive approach in relation to the entitlement of workers to minimum daily and weekly rest breaks under the WTR. The ECJ said that employers should take an active role to ensure a work atmosphere is created within which the minimum rest periods are effectively observed. Although this decision concerned minimum rest periods, the principle behind the decision can be applied to holiday entitlement. Therefore, you should ensure that a work environment exists within which workers can and generally do in fact exercise their right to take the minimum statutory holiday entitlement.

In the ECJ decision it was helpfully pointed out that of course employers cannot force workers to take rest.
In the above ECJ decision the main purpose behind the WTR was emphasised, that is the protection of the health and safety of workers from suffering injury as a result of working for long periods of time without rest. For this reason, it is advisable that employers ensure that their employees do in fact take the holiday to which they are entitled.

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A5: The Working Time Regulations 1998 (WTR) state that statutory annual leave may only be taken in the leave year, in respect of which it is due. Therefore, if your workers are entitled to the statutory minimum holiday entitlement then it would be unlawful to allow a worker to carry over 5 days holiday, as permitted in your contracts. Of course, if you give your employees holiday entitlement which is more than they are entitled to under the Regulations, there is nothing preventing you from allowing them to carry over any part of their entitlement that is over and above the statutory minimum.

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A6: No. The Working Time Regulations 1998 (WTR) prohibit payments in lieu of statutory annual leave except upon the termination of employment. This would not prevent you from buying back any part of an employee’s holiday entitlement which is over and above his/her statutory entitlement.

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A7: When calculating a week’s pay for the purpose of holiday pay, the first step is to ascertain whether the worker has normal working hours. Where a worker is entitled to be paid overtime when he or she works more than a fixed number of hours in a week, the worker’s normal hours will be his or her fixed number of working hours.

Where a worker has normal working hours, but his/her remuneration varies according to the amount of work done during those hours, a week’s pay will be the average amount paid to the worker during his/her normal working hours in the previous 12 working weeks.

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A8: Yes. Under the Working Time Regulations 1998 (WTR) a worker is entitled to a payment in lieu of unused holiday where his/her employment terminates during a leave year and, as at the termination date, the proportion of statutory annual leave that he or she has taken is less then the proportion of leave that he or she has accrued in that year. The obligation to pay in lieu of unused statutory holiday applies even in the case of an employee whose employment has been terminated for gross misconduct.

With regards holiday entitlement over and above the statutory minimum, there is no general implied right to a payment in lieu of such leave, in the absence of an express contractual term dealing with this. Indeed, the Courts have refused in the past to imply such a term into the contract of employment but this does not mean that it cannot be implied in certain circumstances, such as where it is custom and practice to pay in lieu of untaken contractual leave in those circumstances. For the avoidance of doubt you should insert express provision in your contracts of employment that employees will not be entitled to any payment in lieu of contractual leave on termination of employment.

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A9: This type of arrangement although common, may be indirectly discriminatory on the grounds of age or sex.

The Employment Equality Age Regulations 2006 prohibit discrimination on the grounds of age. Holiday entitlement that increases with length of service may be indirectly discriminatory, because although it applies to all workers, younger workers are much less likely to have the necessary length of service to benefit from the provision. There are two exceptions under the Age Regulations to a claim based on length of service benefits, firstly, where the length of service requirement is less than 5 years, and secondly, where it reasonably appears to the employer that it ‘fulfils a business need’ by encouraging loyalty or motivation, or rewarding experience. An employer can also defend a claim for indirect discrimination where it can show that the provision is objectively justified, that is where it is a proportionate means of achieving a legitimate aim.

The provision may also be unlawful under the Sex Discrimination Act 1975 or Equal Pay Act 1970, because women are more likely to take career breaks to bring up children and therefore are less likely, compared to men, to have the necessary service to qualify for the increased holiday entitlement. Again, you can defend such a claim if you can show that the provision is objectively justified and usually it will be a legitimate objective to reward experience in these circumstances.

As a general rule, a long-service requirement, e.g. 10 years or more, is more likely to be discriminatory than a shorter service requirement, e.g. 5 years.

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