Until the Working Time Regulations granted it, unless it was provided in their CONTRACT, employees had no right to paid holiday even though they were entitled to be paid when taking time off in a number of other instances (see LEAVE).

Legal Requirement

Under the Working Time Regulations in 1998 all employees with at least 13 weeks service became entitled to 3 (now 4) weeks paid holiday in a full holiday year. The 13 weeks service requirement was subsequently scrapped so holiday entitlement accrues from the first day of employment. However, those who work a probationary period of 13 weeks do not have to be allowed to take paid holiday during that period (even though they accrue the entitlement). Contractual holiday can be offset by the statutory holiday entitlement.

Employers can stipulate their own holiday year which is usually either the calendar year or the fiscal year (1st April - 31st March). Entitlement in the first (usually broken) year of service can then be related to the number of months - for example 1.67 days for each complete month (the annual rate divided by 12). Statutory holiday is similarly related to the employer's holiday year but, if there is no holiday year stated, the anniversary of the introduction of the legal right is used. Since this is a very inconvenient date to use, stipulating a holiday year is advisable. Since the statutory right includes any paid public and Bank Holidays it is perhaps also now advisable to use the calendar year as the holiday year.

Whereas an employer may allow contractual holiday to be carried forward to a following holiday year and/or even make an equivalent payment in cash, where holiday remains untaken at the end of the period, neither of these concessions apply to statutory holiday. Statutory holiday must be taken within the holiday year to which it relates and, except where an employee leaves and has accrued but not taken some holiday entitlement, can never be paid as a cash alternative. This reflects the EU's commitment to the concept that all employees should have a period away from work and paying in lieu would encourage some to work through their holiday.

Employees taking statutory holiday are required to give twice the length of the holiday required as notice of their intent. Since this would be insufficient notice for many employers, they can require that a longer notice period is provided. If the end of a holiday year is approaching and the employee shows no sign of taking their entitlement, the employer can nominate days on which the statutory entitlement must be taken. If employees are not required to work on bank or public holidays these can be used (provided they are then paid for) to absorb part of the statutory holiday entitlement.

Accrued Contractual Holiday Pay

Unless the contract so stipulates, there is no entitlement to be paid in respect of accrued contractual holiday on leaving, although many contracts state that the allowance related to the number of full months of the last (usually broken) holiday year, less any holiday taken in respect of that year, will be paid with the final wages. Payment made in respect of untaken holiday in this way is taxable.

Contracts should include a clause allowing the employer to recover any paid holiday taken in excess of the entitlement. Unless this is stipulated, such excess entitlement may not be able to be reclaimed.

Holiday Entitlement During Leave, Notice Etc.
a. Maternity
Employers are required to preserve non-monetary contractual benefits for employees during maternity leave and this includes holiday. Arrangements must be made for the holiday to be taken, or an amount paid during the leave. Any rules prohibiting the carrying forward of contractual holiday at the end of a holiday year should be altered to grant an exception for those accruing holiday whilst on maternity leave which bridges a holiday year.

b. Garden Leave
Generally a period of enforced idleness (GARDEN LEAVE) under the contract will entail continued accrual of all rights including holiday and thus the employer in stipulating the employee takes garden leave should nominate the required amount of outstanding days as holiday - to avoid the possibility of paying twice.

c. Parental, Adoption and Family leave

Holiday entitlement continues to accrue.

d. Holiday Pay During Notice
Holiday entitlement continues to accrue.

e. Payment in Lieu of Notice (PILON)
If the employer wishes to bring a contract subject to notice to an end without requiring the employee to work such notice, a PAYMENT IN LIEU (tax free unless the right is in the contract or the payment is made as a matter of routine) can be made. This must reflect the value of the contract - including pay and benefits for the notice period. However, there should be no need to pay for holiday since a payment is already being made for that period.

The application for and the granting of paid holidays (other than for public and Bank holidays) should be monitored so that employees do not take more than their entitlement. (See ABSENCE.)

Paying for Holiday for Non-Standard Employees
Where an employee does not work normal hours or regularly, it can be difficult to calculate the amount of holiday pay to which they are entitled. To ensure they pay the amount of holiday to which the employees is due, some employers use a 'rolled up rate' (RUR). To use a 'RUR', an employer agrees to pay an hourly rate for the job plus a proportion of that hourly rate as a payment on account of holiday pay. This seems a logical way of coping with the obligation in respect of those who work on an ad hoc basis.

The statutory entitlement to paid holiday is 4 weeks - usually referred to as 20 days. If it is agreed there are 260 working days in the year then the holiday proportion is 20/260 or 1/13th. If the hourly rate was £13 this would be the 'wage' and an additional £1 could be paid as the contribution to holiday pay with each hour's pay.

Non-Employees Rights to Holiday
The Working Time Regulations state that any person who works under a 'contract of employment' or any other contract 'whether express or implied' and whether 'oral or in writing' is entitled to 20 days paid holiday per year. This is on the basis that a worker is only entitled if they are not 'running a business' and are providing personal services.

Holiday Pay When Sick
Until recently it was thought that a person could not be both sick and on holiday. If a person fell sick whilst on holiday they would be entitled to SSP (after the three waiting days) and would defer their holiday (and payment for it) until they could take it.

It can be confusing to discern rights and responsibilities when an employee claims to have been sick whilst on holiday. It is important to make it clear in contract documentation that if a person falls sick when on holiday:

a. they must get a certificate from a recognised medical practitioner

b. their holiday is suspended for the period of sickness. Amounts already paid in respect of the holiday will need to be recovered - but offset by any SSP and occupational sickness benefit (if applicable)

c. the amount of holiday during the sickness should be added to the amount still to be taken.