Holidays, Annual (and the Working Time Regulations)
Key points
§ The Working Time Regulations 1998 (as amended) implement Council Directives 93/104/EC (concerning certain aspects of the organisation of working time) and 94/33/EC (on the protection of young people at work). The Regulations, which came into force on 1 October 1998, contain provisions relating to maximum working hours, night work, rest breaks and annual holidays. This section deals with a worker's legal right to four weeks' paid annual holidays.
Meaning of 'worker'
§ The reader will note that the 1998 Regulations apply to 'workers', which expression encompasses workers who are employees (ie, people employed under contracts of employment) but also individuals (such as casual and seasonal workers, agency 'temps' and so-called 'freelancers') who undertake to do or perform personally any work or services for an employer, whether the contract under which they are employed or engaged is verbal or written, express or implied. The Regulations do not, however, apply to persons who are genuinely self- employed, nor do they apply to workers in the air, rail, road, sea, inland waterway and lake transport sectors (or to ancillary workers in those sectors); or to fishermen and others engaged in work at sea; or to the activities of doctors in training.
| Note | In a consultation document published on 31 October 2002, the Secretary of State for Trade & Industry outlined the Government's proposals for implementing a further working time directive (2000/34/EC), known as the Horizontal Amending Directive (HAD), which was adopted by the European Parliament and Council on 1 August 2002. Once amending legislation comes into force (on a date yet to be specified), the 1998 Regulations will be amended to encompass mobile and non-mobile workers in transport and related industries (as well as off-shore workers and junior doctors). Copies of the consultation document (Ref. URN 02/1424) may be accessed and downloaded from website www.dti.gov.uk/er/work_time_regs/hadconsult.htm, or can be obtained from the DTI's Publications Orderline on 0845 6000 925. The consultation period ended on 31 January 2003. |
Entitlement to paid annual holidays
§ Every worker in the UK (unless employed in one or other of the excluded sectors referred to in the previous paragraph) is entitled to a minimum of four weeks' paid holidays in every holiday year. It is important to note that, with the coming into force on 25 October 2001 of the Working Time (Amendment) Regulations 2001 (and the abolition of the former 13-week qualifying rule), workers begin to accrue an entitlement to paid holidays from day one of their contracts and must be paid holiday pay even if they resign or are dismissed within a day or two of starting work. It is as well to add that a worker does not forfeit his (or her) entitlement to accrued statutory holiday pay on the termination of his employment, even if summarily dismissed for gross misconduct. Any term in a contract of employment (or related contract) that purports to undermine or override a worker's entitlement to four weeks' paid annual holiday is void and unenforceable.
§ The Regulations allow that bank and public holidays may form part of a worker's statutory entitlement to paid annual holidays – unless there is a term to the contrary in the worker's contract or the worker in question has traditionally or customarily enjoyed the right to bank and public holidays in addition to any contractual entitlement to holidays and holiday pay. Employers who take it upon themselves to override any such contractual or customary arrangement, without the express permission of the workers in question, are liable to face county court proceedings for breach of contract or (if their employment has come to an end) proceedings for breach of contract before an employment tribunal.
Meaning of 'holiday year'
§ The expression 'holiday year ' means the period of 12 consecutive months beginning each year on an agreed date (eg, 1 January); or as already specified in a worker's contract of employment; or (by default) the period of 12 consecutive months beginning each year on 1 October (ie, the date on which the Regulations came into force); or, if a worker's employment began after 1 October 1998, the date on which the employment began and each subsequent anniversary of that date. In most organisations, the holiday year has long since been established, either by custom and practice or (more usually) by an express term in an employee's contract of employment.
§ The 1998 Regulations state that, in the absence of any contractual or long-established procedure in relation to the taking of annual holidays, a worker wishing to take some or all of his (or her) holiday entitlement during a particular holiday year must give advance notice to his employer equal to twice the required holiday period. Thus, a worker wanting to take two weeks' paid holiday must give his employer at least four weeks' advance notice of the date on which he intends those holidays to start. Should the employer be unable to accede to the worker 's request (perhaps for operational reasons, or because too many people have asked to take their holidays at the same time) he must give the worker at least two weeks' notice of his refusal to allow that worker to begin his holidays on the date in question (ie, notice equivalent to the number of days or weeks' leave requested by the worker in the first place). An employer who postpones a worker 's requested period of leave must nonetheless see to it that the worker is permitted to take that leave (and any remaining leave due to him) before the end of the relevant holiday year.
§ In practice, most employers have well-developed procedures relating to the notification and timing of annual holidays. To avoid the inevitable disruption caused by people wishing to take their holidays (or part of their holidays) at the same time, employers will often draw up their holiday rosters at the beginning of a holiday year. Employers also have the right to limit the number of days' or weeks' holidays that their workers may take at any one time, subject to the proviso that their workers must be permitted to take their full statutory entitlement to paid holidays in the holiday year in which they fall due.
Holidays during the first year of employment
§ Under the 1998 Regulations, as originally enacted, a worker whose period of employment began before 25 October 2001, and part-way through a holiday year, was entitled to anticipate the holidays to which he (or she) was entitled during the remainder of that holiday year, on the assumption that he would remain in his employer's employment until the end of that holiday year. After having taken that full entitlement, any overpayment would be recovered from his final pay cheque.
§ However, with the coming into force on 25 October 2001 of the Working Time (Amendment) Regulations 2001, the rules have changed. Under the 1998 Regulations, as now amended, a worker's entitlement to paid holidays during his (or her) first year of employment may be calculated monthly in advance; that is to say, at the rate of one-twelfth of the worker's full statutory entitlement to four weeks' paid holidays during a complete holiday year (with fractions of a day rounded-up to the nearest half day). In short, during their first year of employment, workers may only take the holidays that have accrued due to them, at the time they choose (or are permitted) to take those holidays (unless their contracts state otherwise).
§ For example:
o A full-time worker, working a five-day week, who is in his or her fifth month of employment, will have built up an entitlement to 8.5 days' leave, ie, his or her annual entitlement of 20 days' paid holiday (four weeks times five days a week) multiplied by 5/12, equals 8.33 days (which is rounded up to 8.5 days).
o A full-time worker (working a six-day week), who is in his or her seventh month of employment, will have built up an entitlement to 14 days' leave, ie, his or her annual entitlement of 24 days' paid holiday (four weeks times six days a week) multiplied by 7/12, equals 14 days.
o A part-time worker (working a three-day week), who is in his or her second month of employment, will have built up two day's leave, ie, his or her annual entitlement of 12 days' paid holiday (four weeks times three days a week) multiplied by 2/12, equals two days.
§ It is as well to point out that rounding-up a worker's entitlement to the nearest half-day should only occur when the worker in question actually takes the whole (or part) of his or her accrued holiday entitlement. The rounded-up element may then be carried forward and deducted when the worker takes his (or her) next tranche of holidays during the remainder of that same first year of employment (before rounding again takes place in respect of that second or subsequent tranche of leave). However, there should be no rounding-up when calculating a worker's entitlement to accrued holiday pay on the termination of his or her employment (whether termination occurs during the worker's first or any subsequent year of employment); in which event, the amount of (rounded-up) leave actually taken before termination should be deducted from the worker's entitlement to leave (calculated, if need be, to two or three decimal places) at the time termination occurs. These provisions are to be found in un-amended regulation 14 of the 1998 Regulations;
§ The 'monthly in advance' procedure (described above) for calculating the holiday entitlement of workers during their first year of employment is unlikely to appeal to employers whose holiday years run from, say, 1 January to 31 December. Rather than adopt that procedure in their entirety, there is nothing in the 1998 Regulations (as amended) to prevent an employer adopting the same or a similar piecemeal approach to holidays for new recruits during the remainder of the employer's holiday year (rather than the 12-month period that constitutes the work's first year of employment).
No 'roll-over' or money in lieu
§ The statutory minimum four weeks' paid annual holidays must be taken in full in the holiday year in which they fall due. They may not be 'rolled-over' into the next holiday year nor may a worker accept (or an employer insist on a worker accepting) an offer of money in lieu of those holidays. Money in lieu of unused holidays is payable if, but only if, a worker resigns or is dismissed part-way through a holiday year. In the case of workers who are entitled under their contracts to more than four weeks' paid holiday, the prohibition on 'roll-overs' and money in lieu of unused holidays applies only to the four-week minimum statutory entitlement.
A refusal to take paid holidays?
§ It is a moot point whether a worker can refuse to take the paid annual holidays, to which he or she is entitled under the 1998 Regulations. Although the Regulations do not allow of any derogation from a worker's entitlement to paid annual holidays (whether that worker be a post-room clerk or the managing director), they do not address the situation that may arise when a worker simply refuses to take any annual holidays. Apart from the fact that such a refusal is tantamount to insubordination giving rise to disciplinary action (and, possibly, dismissal), it should be remembered that the EU's Working Time Directive was introduced and adopted (controversially) as a 'health and safety measure' under Article 118a of the Treaty of Rome.
§ It would be contrary to the spirit of the Directive for employers to permit any persons in their employ to forego their statutory entitlement to paid holidays under the 1998 Regulations. Indeed, an employer's failure to insist on a worker taking the annual holidays to which he (or she) is entitled would be admissible as evidence in a tribunal or court in the event of a complaint of unfair dismissal for lack of capability (eg, due to a stress-related illness) or a civil action for damages brought by a worker taken ill or injured as a direct consequence of the employer's negligence or breach of a statutory duty.
§ If, towards the end of a holiday year, a worker has shown little sign of wanting to take annual holidays, or has made no arrangements for taking those holidays, or has used only part of his (or her) statutory entitlement, the employer has the right to insist that the employee takes all of his entitlement before that holiday year ends. The notice required to be given by an employer in such circumstances is twice the period of holidays to be taken.
Holidays during extended sick leave or maternity leave
§ Strictly speaking, a worker forfeits his (or her) entitlement to paid annual holidays if he (or she) is unable to take his full statutory entitlement due to illness or injury which unavoidably keeps him away from work for the whole or major portion of the relevant holiday year. However, as was pointed out by the Employment Appeal Tribunal (EAT) in Kigass Aero Components v Brown (EAT/481/00), there is nothing in those Regulations to prevent workers on extended sick leave (maternity leave, adoption leave, or whatever), taking their statutory entitlement to four weeks' paid annual holidays (or money in lieu of those holidays) during their enforced absences from work, the more so if they would otherwise be unable to take those holidays (or what remains of those holidays) in the holiday year in which they fall due.
§ The only requirement, said the EAT in Kigass, is that the workers in question give their employers the required advance notice of the date (or dates) on which they intend those holidays to start, whether or not they actually take those holidays or are physically in any condition to do so. The fact that a worker on extended sick leave may or may not have exhausted his or her entitlement to SSP or occupational sick pay, said the EAT, is irrelevant.
§ Readers should note that absentee workers (notably employees) continue to accrue an entitlement to four weeks' paid annual holidays so long as they remain in their employers' employment. This is as true of employees on extended sick leave (as in the Kigass case above) as it is of employees on maternity leave, adoption leave, or on extended leave of absence without pay (eg, study leave). If their absences from work during the whole or major part of a holiday year would prevent them taking the statutory holidays otherwise due to them in that holiday year, they too would be entitled to lay claim to holiday pay before their return to work. The only requirement is that they serve notice on their employers of the date or dates on which they intend their holidays to start – the amount of notice in such cases being the notice required by their contracts of employment or, in the absence of any collective of workforce agreement to the contrary, the notice prescribed by Regulation 15(4) of the 1998 Regulations. So far as maternity leave is concerned, the reader will be aware that a woman who qualifies for both ordinary and additional maternity leave might well be absent from work for up to 52 weeks, even longer if she chooses to take up to four weeks' unpaid parental leave at the end of her additional maternity leave periods – and longer still if illness or injury intervenes to prevent her returning to work on the due date. That same right would apply to an employee who is exercising his or her right to take up to 52 weeks' adoption leave.
Incorporating holiday pay in a worker's wages
§ The practice adopted by many employers of incorporating an element for statutory holiday pay in a worker 's wages or salary, and then paying them nothing when they physically take their holidays, quit their jobs or are dismissed, was castigated recently by the EAT in MPB Structure Ltd v Munro (EAT/1257/01) as being contrary to the spirit of the 1998 Regulations, and void. 'It is clear to us', said the EAT, 'that the basic theme or aim of the Regulations is to ensure that workers obtain appropriate holiday leave and to do so they must have the necessary funds. We consider that, by placing the onus of retaining the funds from week to week for holiday purposes [on the worker], there may well arise the problem of adequate funding at the time of the holiday leave being taken. This could become compounded if sufficient service in any one year had not been served so as to build up a sufficient entitlement to be paid the equivalent of a week's pay during the holiday period. We consider that the only way that the provisions of the 1998 Regulations and, indeed, their spirit can be met, is for holiday pay to be paid as and when the holiday is taken, at the appropriate rate'.
§ In light of the EAT's decision in MPB Structure Ltd v Munro, which (at the time of writing) remains unchallenged, employers contemplating incorporating an element for statutory holiday pay in a worker's wages or salary should think again. Furthermore, as was pointed out by the Court of Appeal in Blackburn & Others v Gridquest Ltd [2002] IRLR 604, an employer cannot unilaterally decide that a week's pay is a payment not only for the hours worked during a week but also includes an element for holiday pay. 'The weekly payment', said the CA, 'can only be held to include an amount for something else, such as holiday pay, if that is agreed between employer and employee. The claim [by the employers in the present case] that holiday pay was in fact paid amounts to an assertion that the employer can decide unilaterally what is included in the weekly payment. Regulation 16(5) [of the Working Time Regulations 1998] does not confer that right upon an employer'. In reaching its judgment in the Blackburn case, the CA declined to address that of the EAT in MPB Structure Ltd v Munro (qv), as there was no reference in that earlier judgment to Regulation 16(5) of the 1998 Regulations.
§ Given the circumstances that prompted the EAT's ruling in MPB Structure Ltd v Munro, it may be (repeat, may be) acceptable to incorporate an element for holiday pay (sick pay, or whatever) in the wages of those casual, seasonal or temporary workers who rarely spend more than two or three days at a time working for a particular employer. However, in light of the CA's decision in the Blackburn case (see previous paragraph), they should see to it that the workers in question are made aware of (and accept) that arrangement before they actually start work. Ideally, this should be done in writing. Furthermore, to avoid a situation in which workers make unfavourable comparisons with the wages paid to other workers doing the same or similar work within the same organ- isation, employers should make it clear to those casual workers (again, preferably, in writing) precisely what percentage or element of their hourly or daily rate of pay constitutes a payment in respect of holiday pay. That element should not be less than 8.33%. In other words, if the standard rate of pay for a particular job is, say, £5 an hour, a casual worker doing the same job, whose wages include an element for statutory holiday pay, should be paid a minimum of £5.42 an hour.
Part-time workers
§ It should, perhaps, be pointed out that the 1998 Regulations make no distinction between part-time and full-time workers. Each has the right to four weeks' paid annual holidays (ie, which is tantamount to a right to be physically absent from the workplace for four weeks), regardless of the number of hours or days they actually work, or are contracted to work, in each week. The difference lies in the amount of a week's pay. For example, a part-timer who works two days a week is still entitled to be absent from work for four weeks in each holiday year, but will not be entitled to more than eight days' holiday pay. Employers should also be mindful of the now legal right of part-time workers not to be treated less favourably than comparable full-time workers working in the same establishment;
Calculating holiday pay
§ Simply stated, a week's holiday pay for a worker who is contracted to work a fixed number of hours each week, is the amount he (or she) would normally expect to earn in that week. For a worker, whose working hours vary from week to week, it is the average of that worker's earnings over the 12-week period immediately preceding the week in which the worker elects to take some or all of his holidays. Although overtime hours must be included in calculations, overtime premium payments need not – unless the worker 's contract states otherwise or the employer is contractually-bound to provide a specified number of overtime hours each week and the worker is obliged to work those additional hours. If, for one reason or another, a worker has not received any pay during one or more weeks in that 12-week period, account should be taken of earlier paid weeks in order to bring the aggregate up to 12. A day's holiday pay for a worker would be his normal (or average) week's pay divided by the number (or average number) of hours worked in a week.
§ Salaried workers do not normally receive their holiday pay in advance – their salaries usually being paid seamlessly into their bank or building society accounts at the end of each month. Should the issue arise, a week's pay for a salaried worker is his or her annual salary divided by 52; and a day's pay, a week's pay divided by the number of days the worker is contractually required to work in a week.
§ A worker who resigns or is dismissed part-way through a holiday year is nonetheless entitled to money in lieu of the holidays that have accrued due to him (or her) at the time his employment comes to an end, less a deduction in respect of any paid holidays taken by the worker during that same holiday year. If the worker has taken more paid holidays than those to which he is entitled, his employer may either require him to repay the excess amount or deduct the excess from the worker's final pay packet. However, as was pointed out by the EAT in Hill v Chappell (EAT 1250/01) (see next paragraph), an employer has no right to deduct excess holiday pay from a worker 's final payment of wages or salary (or to demand a repayment) unless there is an express term to that effect in the worker's contract (or in a collective or workforce agreement imported into that contract). That said, the correct formula for calculating a worker 's entitlement to accrued holiday pay on the termination of his employment is A x B – C, where A is the period of leave to which the worker is legally entitled during a full holiday year (ie, four weeks); B is the proportion of the holiday year that expired before the date on which the worker's employment came to an end; and C is the period of leave already taken by the worker between the beginning of the holiday year and the termination date.
§ The assumption by many employers that they have a common law, if not a statutory, right to 'claw back' overpaid holiday pay when one or other of their workers resigns or is dismissed part-way through a holiday year is misconceived. So said the Employment Appeal Tribunal (EAT) in the Hill v Chappell case referred to in the previous paragraph. Unless there is an express term to that effect in an employee or worker's contract, said the EAT, such a deduction is unlawful. In the Hill case, an employee with six months' service quit her job and sued her employers for breach of contract arising out of their failure to pay her any salary for two consecutive months. An employment tribunal awarded her damages equivalent to two months' salary, less one week's pay in respect of overpaid holiday pay. In evidence it was revealed that, prior to the termination of her employment, Miss Hill had taken three weeks' paid holidays – one week more than her statutory entitlement, given that she had completed only six months' service when she resigned. At the appeal hearing, the EAT pointed out that an employer has no legal right to deduct overpaid holiday pay from a worker's final pay packet unless, consistent with regulation 14(4) of the Working Time Regulations 1998 (see Note below), there is an express term to that effect either in the worker's contract or in a workforce or collective agreement imported into that contract. Nor, contrary to the argument, advanced by Miss Hill's former employers, did the deduction amount to a lawful deduction under section 14(1) of the Employment Rights Act 1996.
| Note | Regulation 14(4) of the Working Time Regulations 1998 reads as follows: 'A relevant agreement may provide that, where the proportion of leave taken by the worker exceeds the proportion of the leave year which has expired, he shall compensate his employer, whether by a payment, by undertaking additional work or otherwise'. |
§ In the Hill case, the EAT acknowledged that section 14(1) of the 1996 Act does indeed authorise the deduction of any overpayment of wages or salary from a worker's pay packet without the worker's prior consent. However, Miss Hill's excess holiday pay was not an 'overpayment', said the EAT. She had applied for, and been granted, three weeks' holidays. She was legally entitled to be paid for those holidays when she took them. However, her employers had neglected to include a term in her contract authorising them to recover any overpaid holiday pay should she resign or be dismissed. That had been their undoing.
Victimisation or dismissal
§ A worker who does not receive the paid annual holidays to which he (or she) is entitled under the Working Time Regulations 1998 may refer the matter to an employment tribunal. If the complaint is upheld, the employer will be ordered to pay compensation. A worker who is dismissed, selected for redundancy or subjected to any detriment (by any action or inaction on the part of his employer), for having challenged his employer's conduct or for asserting his statutory right to paid annual holidays, may complain to an employment tribunal. If that complaint is upheld, the employer will be ordered to pay the worker a substantial amount of compensation (per sections 45A, 101A, 104 and 105(4A), Employment Rights Act 1996).
§ A worker in these circumstances may complain to an employment tribunal regardless of his (or her) age or length of service at the material time. The complaint must be presented within three months of the alleged unlawful action or, if the worker has resigned or been dismissed, within three months of the effective date of termination of his contract of employment.
Written statement of employment particulars
§ Every worker (qua employee) has the legal right, under sections 1 to 7 of the Employment Rights Act 1996, to be issued with a written statement outlining the principal terms and conditions of his (or her) employment. The statement (often, if not entirely accurately, referred to as 'the contract of employment') must be issued within the first eight weeks of employment and must include information about the employee's job title, rate of pay, sickness benefits, and the like. It must also explain the employee's entitlement to paid annual holidays, including public and bank holidays. As the law now stands, those written statements need not be issue to workers who are not 'employees' in the strict legal sense of the word.
§ The information in the written statement concerning paid annual holidays must be sufficiently detailed so as to enable the employee in question to calculate his (or her) entitlement to accrued holiday pay on the termination of his employment (ibid. section 1(4)(d)(i)). In light of the Working Time Regulations 1998, the statement should also acknowledge the employee's statutory right to a minimum of four weeks' paid annual holidays and the right to accrued holiday pay on the termination of his employment. Any term in the written statement, or in a contract of employment, that purports to override or undermine those rights, is void and unenforceable.
§ Furthermore, the information about paid annual holidays must be given in the written statement itself. It is not permissible for the statement to refer an employee to a collective agreement or some other document for information about his (or her) holiday entitlements – however accessible that other document may be (ibid. section 2(4)).
§ If an employee is dismissed or selected for redundancy (either for questioning his (or her) employer's failure to comply with section 1 of the 1996 Act or for referring the matter to an employment tribunal), that dismissal will be held to have been unfair and compensation will be awarded (ibid. sections 104 and 105(7)). An employee may present a complaint of unfair dismissal in such circumstances (including a claim for damages arising out of any breach of contract), regardless of his age or length of service at the material time. But the complaint must be presented within three months of the effective date of termination. If the complaint is upheld, the employer will be ordered to pay compensation.
§ An employer's failure to provide an employee with a written statement (or to provide a statement that includes particulars about an employee's entitlement to paid annual holidays) may be referred to an employment tribunal for adjudication. Should the employee's complaint (or reference) be upheld, the tribunal will order the employer either to set matters to rights or to accept such terms and conditions as the tribunal considers to be appropriate in the circumstances.
§ The Department of Trade & Industry has published A Guide to the Working Time Regulations (Ref URN 98/894), copies of which are available on request by telephoning 0845 6000 925. The Guide includes the telephone numbers of all ACAS Public Enquiry Points for those employers who need further assistance on matters relating to paid annual holidays, rest periods and in-work rest breaks.
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