Holidays and Holiday Pay – Who is entitled to what?

This brief guide will answer the questions you may have regarding holiday pay entitlement.

June is finally upon us and people across the country are eagerly packing their suitcases and setting off on their summer holiday.

While it is a period that should be stress-free, many people are often confused when it comes to holiday pay. It can create unnecessary tension between employer and employee and lead to both parties feeling hard done by. 

In this guide, we will explain the rules surrounding holidays and holiday pay entitlement from an employment law point of view, in order to shed some light on an often confusing area of law.

Getting holiday pay right

In our experience, the two things that an employer needs to ensure that they get right are the issues of pay and holidays. Nothing is more likely to cause unhappiness in an employee than having to query the amount pay they are entitled to or the amount of holidays they should be allowed.

Recent developments relating to both holidays and holiday pay show that employers need to be alert. Last year it was reported that UK workers were cheated out of at least £1.5bn a year in holiday pay, with one in 20 workers reported not being given statutory holiday pay.* There have also been recent landmark court rulings that employers need to be aware of, which I will discuss below.  

How much is a week's pay for holiday purposes?

When assessing how much a week's holiday pay should be, an employer needs to know what to take into account. In most cases, this is not difficult, as the majority of employees simply receive a regular weekly wage or monthly salary.

However, many workers receive varying payments which will depend on what work that they have carried out. For instance, many workers carry out overtime. This overtime can be voluntary or, in certain cases, compulsory i.e. the employer is entitled to make the employee carry out the work.

Such overtime payments are sometimes very regular, and sometimes only available in exceptional circumstances. Some employees, particularly sales personnel, receive a fairly low basic wage which is substantially supplemented by commission, which is then payable upon actual sales being achieved. Some employees receive contractual bonuses if certain targets are hit. As you can see, there are many scenarios which need to be considered before determining the correct amount of holiday pay entitlement.

When an employer comes to fix holiday pay when someone goes away on holiday, should that holiday pay be only at the basic salary or should it include the extras which people frequently earn?

What does the law say?

There has been considerable case law on this over the last few years and this has now been clarified to a certain extent. It has been made clear that when assessing how much an employee should be paid by way of holiday pay that it should;

• include all normal payments that the employee would normally receive
• which includes regular overtime, whether voluntary or compulsory average commission and contractual bonuses

This means that the amount of holiday pay entitlement will be considerably increased in certain cases where the employee was only being paid a basic level of payment.

The rationale behind this is that people should not be discouraged from taking their full holidays. If an employee feels they will lose out financially by taking a holiday they are less likely to take it. The law, therefore, is encouraging employers to make sure that the full payment is made and, consequently, that an employee is not losing out financially by taking that holiday.

Many employers will now need to pay the full holiday pay since the court decision made last year agreed that “regular and settled” voluntary overtime should be included in holiday pay.**

Rolled-up holidays

There used to be a practice whereby some employers included holiday pay in the normal weekly pay. This meant they stated to the employees that within the weekly pay they received, a small proportion of it constituted their holiday pay.

This then meant that when the employee went on holiday they received no pay at all, as their holiday pay had been deemed to be included in the earlier payments received. The idea was that people store up the extra pay and use it when they want to take time off work.

However, this practice has now been generally outlawed. It was frequently used in the building industry and in areas of work where people were paid piecework.  

Who is entitled to holiday pay?

Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). This includes full-time and part-time workers.

This does not include those who are self-employed. However, it is worth considering about what is classed as self-employed due to the landmark case last November which saw Uber drivers being classed as “workers” rather than self-employed, and therefore entitled to holiday pay.***

People who work part-time and their holidays

 There are often difficulties which arise over part-time workers and holiday entitlement, particularly when it comes to the bank holiday allowance.

There are 8 public holidays per annum in this country. Half of them fall on Mondays. In some years, as many as 6 of the 8 public holidays will fall on Monday (if Christmas Day is on a Monday then 6 of the bank holidays will fall on that day).

This means that if a part-time worker, say, works Wednesdays to Fridays, they are going to lose out when it comes to the majority of bank holidays as the majority of such holidays will fall on a day when they are not working.

Part-time workers are entitled to be treated on an equal basis with full-time workers and should not have within their terms and conditions anything which is disadvantageous to an equivalent full-time worker. This means that they are entitled to the same proportion of public holidays as a full-time worker would have had.

When assessing a part-time worker’s entitlement to public holidays it is, therefore, best to give them additional holidays for the public holidays on a pro rata basis to the number of hours they do a week. This means that the part-time worker who does not work on a Monday does not get treated unfairly.

* https://www.theguardian.com/law/2017/jun/19/uk-workers-cheated-15bn-a-year-holiday-pay

** https://employeebenefits.co.uk/issues/august-online-2017/eat-rules-dudley-metropolitan-borough-council-holiday-pay-case/

*** https://www.theguardian.com/technology/2017/nov/10/uber-loses-appeal-employment-rights-workers