Holiday and holiday pay

Updating author: Nicky Stibbs

Summary

Future developments

Holiday pay reference period: On 17 December 2018, the Government published its Good work plan, setting out its "vision for the future of the UK labour market". The plan follows its publication of Good work: a response to the Taylor review of modern working practices and Consultation on measures to increase transparency in the UK labour market on 7 February 2018.

In the Good work plan, the Government confirmed that it will increase the holiday pay reference period to 52 weeks (from 12 weeks) for workers without normal working hours. The Government stated that this change will allow greater flexibility for workers in choosing when to take holiday, particularly for those in seasonal or atypical roles that limit some workers from benefiting from their full holiday pay entitlement. The change is introduced in the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 (SI 2018/1378), which come into force on 6 April 2020.

Enforcement of holiday pay rights for vulnerable workers: The Government also confirmed in the Good work plan, that it will introduce state enforcement of vulnerable workers' holiday pay rights in line with one of the recommendations made in the Taylor review. On 16 July 2019, the Government commenced a consultation on the case for a new single labour market enforcement body. The consultation is seeking views on the remit of the proposed new body, the approach that it should take to enforcement and the powers and sanctions that should be available to it. The Government proposes that holiday pay enforcement for vulnerable workers should come within the new body's remit. The consultation closes on 6 October 2019.

Overview

The Working Time Regulations (SI 1998/1833) entitle workers to a minimum of 5.6 weeks' paid annual holiday, which equates to 28 days for a worker on a five-day working week.

The 5.6 weeks comprises:

  • four weeks (equivalent to 20 days) under reg.13 of the Working Time Regulations, which implements the four-week entitlement in the Working Time Directive (2003/88/EC); and
  • an additional 1.6 weeks (equivalent to eight days) under reg.13A of the Working Time Regulations because UK law is more generous than the Directive.

The Working Time Regulations 1998 apply to workers regardless of their length of service, although, during the first year of employment, specific rules apply that mean that holiday entitlement accrues at the rate of one-12th of a full year's entitlement at the start of each month (see Holiday in first year of employment).

Part-time workers are entitled to 5.6 weeks' leave, but calculated on a pro rata basis according to the number of days or hours that they work.

Workers who are denied their rights to statutory paid annual holiday may complain to an employment tribunal. Where a worker is successful in their claim, the tribunal will make a declaration to that effect and may order the employer to pay the worker such compensation as it considers just and equitable in the circumstances (see Enforcement and remedies).

Additional resources on overview

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Meaning of "worker"

The Working Time Regulations 1998 (SI 1998/1833) apply to "workers". Workers are individuals who work under a contract of employment, or any other contract whereby they undertake to perform personally any work or services for another party to the contract who is not the worker's client or customer.

This includes freelancers, casual or seasonal workers and agency temps. The genuinely self-employed are, however, excluded.

Additional resources on the meaning of "worker"

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Excluded categories

Although they may be entitled to minimum annual leave under other legislation, the right to paid annual holiday under the Working Time Regulations 1998 (SI 1998/1833) does not apply:

  • to seafarers to whom the Merchant Shipping (Maritime Labour Convention) (Hours of Work) Regulations 2018 (SI 2018/58) apply;
  • to workers on board a sea-going fishing vessel to whom the Fishing Vessels (Working Time: Sea-Fishermen) Regulations 2004 (SI 2004/1713) apply;
  • to workers on board a ship or hovercraft employed by an undertaking that operates services for passengers or goods by inland waterway or lake transport to whom the Merchant Shipping (Working Time: Inland Waterways) Regulations 2003 (SI 2003/3049) apply;
  • where characteristics peculiar to certain specific services, such as the armed forces or the police, or to certain specific activities in the civil protection services inevitably conflict with the provisions of the Regulations; or
  • to those mobile workers in the civil aviation industry to whom the Aviation Directive (2000/79/EC) and Civil Aviation (Working Time) Regulations 2004 (SI 2004/756) apply.

Amount of holiday

The Working Time Regulations 1998 (SI 1998/1833) entitle workers to 5.6 weeks' paid annual holiday.

This comprises:

  • the four-week annual leave entitlement under reg.13 (in line with the Working Time Directive (2003/88/EC)); and
  • 1.6 weeks' additional annual leave entitlement under reg.13A.

The aggregate 5.6-week leave entitlement under regs.13 and 13A is subject to a maximum of 28 days. For example, a worker who has a six-day working week is entitled to only a total of 28 days' paid annual leave.

Both the four weeks' leave under reg.13 and the additional 1.6 weeks' leave under reg.13A can be taken in instalments, and neither can be replaced by a payment in lieu, except where the employment is terminated (see Entitlement to pay in lieu of holiday on termination of employment).

The distinction between reg.13 and reg.13A is important because the European Court of Justice decisions on the interaction of holiday and sickness absence concern a worker's entitlement to the four weeks' leave under reg.13, not the additional 1.6 weeks' leave under reg.13A (see Holiday and sickness absence interplay).

Part-time workers - pro rata entitlement

Part-time workers have a pro rata entitlement to 5.6 weeks' paid annual holiday. For example, a part-time worker who works two days a week has the right to 11.2 days' annual leave - 5.6 weeks of two days each.

A worker's holiday entitlement accrued (but not yet taken) during a period of working full time cannot be reduced when the worker changes to working part time (Zentralbetriebsrat der Landeskrankenhäuser Tirols v Land Tirol C-486/08 ECJ).

The same principle applies when a part-time worker changes to working full time (Greenfield v The Care Bureau Ltd [2016] IRLR 62 ECJ). There is no change to the holiday entitlement accrued (but not yet taken), and a fresh calculation of statutory holiday is necessary only for the period of work undertaken on the new full-time basis.

Additional resources on amount of holiday

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Bank and public holidays

The Working Time Regulations 1998 (SI 1998/1833) entitle workers to 5.6 weeks' paid annual leave, which may include bank and public holidays.

There is no statutory right for any of the paid annual leave to be taken on a bank or public holiday. Although bank and public holidays are widely observed, any such right will depend on the contract of employment.

Additional resources on bank and public holidays

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"How to" guidance

The holiday year

The start of the holiday year is generally set by an individual's contract of employment or contained in a collective agreement. In many organisations, the holiday year either begins on 1 January and ends on 31 December or runs from 1 April to 31 March of the following year.

In the absence of an agreement, reg.13 of the Working Time Regulations 1998 (SI 1998/1833) provides that the holiday year begins on the date on which the worker's employment begins, and on each subsequent anniversary of that date.

To avoid having employees with different holiday year dates, employers should state when their holiday year begins and ends.

Holiday in first year of employment

Unless the contract or a relevant agreement (see Meaning of "relevant agreement" and "workforce agreement") determines otherwise, the amount of leave that workers may take at any time in the first year of their employment (regardless of the dates of the holiday year in which they started) is limited to the amount of leave that they have accrued at that time. Accrued leave is calculated monthly in advance at the rate of one-12th of the full annual entitlement under regs.13 and 13A of the Working Time Regulations 1998.

If the amount of leave that has accrued in a particular case includes a fraction of a day other than a half day, that fraction must be treated as a half day if it is less than a half day, and as a whole day if it is more than a half day. Any rounded-up element is then deducted from the annual leave remaining.

For example:

  • full-time workers (working a five-day week) who are in their fourth month of employment will have built up 9.5 days' leave, ie the annual entitlement of 28 days (5.6 weeks x five days) multiplied by 4/12 equals 9.33 days, which is rounded up to 9.5 days; and
  • part-time workers working three days a week who are in their seventh month of employment will have built up 10 days' leave, ie the annual entitlement of 16.8 days (5.6 weeks x three days) multiplied by 7/12 equals 9.8 days, which is rounded up to 10 days.

Additional resources on holiday in first year of employment

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Worked examples

Pay for holiday - a week's pay

Regulation 16 of the Working Time Regulations 1998 (SI 1998/1833) requires workers to be paid at the rate of "a week's pay" for each week of their statutory annual leave. The amount of a week's pay is calculated in accordance with the rules set out in ss.221 to 224 of the Employment Rights Act 1996 (reg.16(2)). Sections.227 and 228 of the Employment Rights Act 1996 do not apply, which means that there is no statutory cap on a week's pay (reg.16(3)). A week's pay is based on gross pay.

However, ss. 221 to 224 of the Employment Rights Act 1996 must be read with some modifications when calculating a worker's right to paid leave in respect of the four-week annual leave entitlement under reg.13 of the Working Time Regulations 1998. This is because a series of decisions by the European Court of Justice and the domestic courts affect the calculation of statutory holiday pay during the four-week leave entitlement in respect of overtime payments, commission and other allowances (see Calculating holiday pay under reg.13 - four weeks' leave).

The rules in the Employment Rights Act 1996 distinguish between workers with, and workers without, normal working hours.

Normal working hours

Under s.221 of the Employment Rights Act 1996, the amount of a week's pay is the amount that is payable by the employer under the contract of employment in force on the calculation date if the worker works their normal working hours in a week. A day's pay is a worker's hourly rate of pay multiplied by the number of normal hours worked on the day in question, or a week's pay divided by the number of days normally worked in a week.

Where a worker has normal working hours, but their pay varies according to the amount of work done (s.221(3)), or the time work is done (s.222), a week's pay is calculated on the basis of their average pay during those normal working hours over the 12-week period ending with the week immediately preceding the date on which their holiday begins (s.221(3)). This includes any commission or similar payment that varies in amount (s.221(4)). However, the judgments in Bear Scotland Ltd and others v Fulton and others; Hertel (UK) Ltd v Woods and others; Amec Group Ltd v Law and others [2015] IRLR 15 EAT, East of England Ambulance Service NHS Trust v Flowers and others [2019] IRLR 798 CA (in which the Court of Appeal approved the Employment Appeal Tribunal (EAT) decision in Dudley Metropolitan Borough Council v Willetts [2017] IRLR 870 EAT) and Lock v British Gas Trading Ltd [2014] IRLR 648 ECJ affect the calculation of statutory holiday under s.221 during the four-week basic entitlement (see Calculating holiday pay under reg.13 - four weeks' leave).

Workers who are entitled to receive overtime pay for working "more than a fixed number of hours in a week or other period" are treated, under s.234 of the Employment Rights Act 1996, as having normal working hours. Under s.234, overtime qualifies as part of a week's pay for workers with normal hours, only where the overtime is fixed under the contract of employment. This means that, under the statutory provisions, where overtime hours have been worked during the 12-week period immediately preceding the date on which a worker's holiday begins, only those hours that the employer is contractually required to provide, and the worker contractually required to work, count as normal working hours for the purposes of determining the amount of a week's pay (Bamsey and others v Albon Engineering & Manufacturing plc [2004] IRLR 457 CA). However, in Bear Scotland, the EAT held that, in order to conform with the Working Time Directive, the Working Time Regulations 1998 must be read so that s.234 does not apply in the case of the four-week leave entitlement. This means that, when calculating holiday pay for the four-week leave entitlement, the words "normal working hours" must be given their natural meaning (see Calculating holiday pay under reg.13 - four weeks' leave).

No normal working hours

Section 224 of the Employment Rights Act 1996 applies where workers do not work normal hours. For these workers, a week's pay is calculated as the average weekly remuneration over the previous 12 weeks. This includes bonuses and commission payments.

Weeks in which no pay is earned are not included in the calculation and instead it is necessary to count backwards and take earlier paid weeks into account to bring the aggregate up to 12.

Holiday pay for "part-year" workers (eg term-time workers) should not be calculated on a pro rata basis, but by applying the approach set out in s.224 of the Employment Rights Act 1996 and calculating average weekly remuneration over the previous 12 weeks (The Harpur Trust v Brazel [2019] EWCA Civ 1402 CA).

Calculating holiday pay under reg.13 - four-weeks' leave

Sections 221 to 224 of the Employment Rights Act 1996 must be read with some modifications when calculating a worker's right to paid leave in respect of the four-week annual leave entitlement under reg.13 of the Working Time Regulations 1998, which is in line with the Working Time Directive. The term "paid annual leave" means that, for the duration of annual leave within the meaning of the Directive, remuneration must be maintained. In other words, workers must receive their "normal remuneration" for the holiday period under reg.13 (Robinson-Steele v RD Retail Services Ltd and other cases [2006] IRLR 386 ECJ).

Normal remuneration is pay that has been "normally received" over a sufficient period of time, or part of a pattern of work that is sufficiently settled and regular, to justify the label "normal" (Bear Scotland Ltd and others v Fulton and others; Hertel (UK) Ltd v Woods and others; Amec Group Ltd v Law and others [2015] IRLR 15 EAT and East of England Ambulance Service NHS Trust v Flowers and others [2019] IRLR 798 CA (in which the Court of Appeal approved the Employment Appeal Tribunal (EAT) decision in Dudley Metropolitan Borough Council v Willetts [2017] IRLR 870 EAT)). Any aspect of pay that is intrinsically linked to the performance of the tasks that the worker is required to carry out, and in respect of which a monetary amount is provided, must be included in the calculation of the worker's total remuneration. Subject to fulfilling these requirements, normal remuneration may include the following:

Normal remuneration does not include any payments that are "intended exclusively to cover occasional or ancillary costs arising at the time of performance of the tasks which the worker is required to carry out" under their contract of employment (Williams and others v British Airways plc [2011] IRLR 948 ECJ).

A worker who is on long-term sickness absence may nominate a period of that sick leave as a period of holiday (eg if they have exhausted their sick pay) and must, during that period, receive the normal remuneration that the worker would have received had they been at work (see Holiday and sickness absence interplay).

Calculating holiday pay under reg.13A - additional 1.6 weeks' leave

Sections 221 to 224 of the Employment Rights Act 1996 apply without modification when calculating holiday pay for the additional 1.6 weeks' leave under reg.13A of the Working Time Regulations 1998 (see above). However, some employers may find it administratively convenient and/or good for employee relations to treat the leave under reg.13A in the same way as they treat the leave under reg.13 for holiday pay purposes.

Order of reg.13 and reg.13A leave

The order of leave is important because the approach to calculating holiday pay differs depending on whether the leave entitlement is under reg.13 or reg.13A (see Calculating holiday pay under reg.13 - four weeks' leave and Calculating holiday pay under reg.13A - additional 1.6 weeks' leave).

In Bear Scotland Ltd and others v Fulton and others; Hertel (UK) Ltd v Woods and others; Amec Group Ltd v Law and others [2015] IRLR 15 EAT, the Employment Appeal Tribunal commented, obiter, that the leave under reg.13A is described as "additional leave", which suggests that, when considering the order in which leave is taken, the additional 1.6 weeks' leave under reg.13A should be considered to follow the taking of the four-week leave under reg.13. This approach was followed by the employment tribunal in Brettle and others v Dudley Metropolitan Borough Council ET/1300537/2015. However, there is no binding authority on this point.

Additional resources on pay for holiday - a week's pay

FAQs

Rolled-up holiday pay

Rolled-up holiday pay arrangements provide that a specific part of a worker's wages represents holiday pay. As payment in respect of a period of holiday is spread throughout the year, the worker is then paid nothing when they actually take the holiday. The practice of rolling-up holiday pay was traditionally used to deal with the holiday entitlement of casual or short-term workers.

However, in Robinson-Steele v RD Retail Services Ltd and other cases [2006] IRLR 386 ECJ, the European Court of Justice (ECJ) ruled that rolling up holiday pay into wages is unlawful. The ECJ held that, although there is no provision in the Working Time Directive (2003/88/EC) expressly laying down the point at which payment for annual leave must be made, the purpose of the right to paid annual leave is to put the worker in question in a comparable position, as regards remuneration, to their position during periods of work. Making part-payments staggered throughout the year and paid together with remuneration for work done is contrary to this purpose, particularly since it might lead to situations in which the minimum period of paid annual holiday is, in effect, replaced by an allowance in lieu of leave, something prohibited by the Directive except on termination of the employment.

Somewhat confusingly, however, the ECJ also stated in Robinson-Steele that sums already paid to a worker under a rolled-up holiday pay scheme could be set off against holiday pay due to the worker, as long as the arrangements were sufficiently transparent and comprehensible and the sums represented an addition to pay for work done. Adopting a similar approach in Lyddon v Englefield Brickwork Ltd [2008] IRLR 198 EAT, the Employment Appeal Tribunal held that the employer was entitled to offset rolled-up holiday pay against holiday pay due to a worker when the worker actually took holiday provided that there was "a consensual agreement identifying a specific sum properly attributable to periods of holiday".

Following Robinson-Steele, the Government chose not to amend the Working Time Regulations 1998 (SI 1998/1833) to prohibit expressly the practice of rolling up holiday pay. However, it has issued various, different advice on the application of rolled-up holiday pay over the years. The Government's current guidance states that: "Holiday pay should be paid for the time when annual leave is taken. An employer cannot include an amount for holiday pay in the hourly rate (known as 'rolled-up holiday pay'). If a current contract still includes rolled-up holiday pay, it needs to be re-negotiated."

Holiday requests

Regulation 15 of the Working Time Regulations 1998 (SI 1998/1833) governs the notice requirements for taking leave under regs.13 and 13A. The notice requirements in reg.15 may be varied or excluded by a relevant agreement.

In the absence of any arrangement or agreement to the contrary, workers must give notice equal to twice the length of the holiday they wish to take. For example, a worker wishing to take a week's holiday must give the employer at least two weeks' advance notice of the date on which they intend that holiday to begin.

The ability of workers to take annual leave is not inalienable and can be lost if workers do not comply with the notice requirements imposed by the Working Time Regulations 1998 and/or under the contract (Lyons v Mitie Security Ltd [2010] IRLR 288 EAT).

An employer may refuse a worker's holiday request by serving a counter-notice requiring that the leave not be taken, provided that the counter-notice is equivalent to the length of the holiday requested. However, while the employer can refuse individual requests for holiday, it cannot do so in a way that prevents a worker taking the leave to which they are entitled in that holiday year.

Holiday designated by employer

Under reg.15 of the Working Time Regulations 1998, employers can require workers to take leave on particular days. For example, it is not uncommon for factory workers to be required to take part of their holiday entitlement during the annual factory shutdown. Similarly, workers in the hotel and catering industry are often required to take at least some of their holiday entitlement in the off-peak season (avoiding Easter, Christmas and the busy summer season).

The employer must give notice equal to twice the length of holiday that it wishes the workers to take.

An employer can designate any day that a worker can contractually be required to work as a day of leave. This can include Saturdays and Sundays if these are days on which the worker could genuinely be required to work under their contract - there is no "magic" about weekends (Sumsion v BBC (Scotland) [2007] IRLR 678 EAT).

The Supreme Court has held that oil-rig workers can be required to take annual leave during onshore "field breaks" (Russell and others v Transocean International Resources Ltd and others [2012] IRLR 149 SC). The Supreme Court concluded in Russell and others that its decision means that employers in other sectors, such as education and tourism, can require workers to take their annual leave during pre-ordained rest periods when they are not required to work, such as non-term time or off-season.

Additional resources on holiday requests

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Holiday and maternity leave interplay

Workers continue to accrue statutory leave under regs.13 and 13A of the Working Time Regulations 1998 (SI 1998/1833) during maternity leave and other family leave.

Workers must be able to take annual leave during a period other than the period of maternity leave, including in a case in which the period of maternity leave coincides with the general period of annual leave fixed by a collective agreement for the entire workforce (Merino Gómez v Continental Industrias del Caucho SA [2004] IRLR 407 ECJ). In practice, workers generally take their accrued holiday entitlement before the start of maternity leave and/or after it has finished.

Carrying over leave from one leave year to the next is not permitted under the Working Time Regulations 1998 in relation to the four-week statutory minimum entitlement under reg.13. (Under reg.13A(7), a relevant agreement may provide for any leave to which a worker is entitled under reg.13A to be carried forward into the leave year immediately following the leave year in respect of which it is due.) However, the European Court of Justice has suggested that prohibiting a woman from taking her statutory leave entitlement, either in respect of her four-week entitlement under the Working Time Directive or a higher amount laid down by national law (ie 1.6 weeks under reg.13A in the UK), would amount to sex discrimination (Merino Gómez). Clarification from the courts is awaited on this point. In practice, many employers simply permit any holiday entitlement that has not been taken because of maternity leave to carry over into the following leave year.

Other family leave is treated in the same way as maternity leave for statutory holiday purposes.

Holiday and sickness absence interplay

EU and domestic legislation

The relationship between sickness absence and annual leave is not expressly addressed in either the Working Time Directive (2003/88/EC) or the Working Time Regulations 1998 (SI 1998/1833).

As a result, the European Court of Justice (ECJ) has had to interpret the Working Time Directive on a case-by-case basis to determine the key principles governing the interaction of holiday and sickness absence.

The domestic courts are obliged to interpret the Working Time Regulations 1998 by reference to the Working Time Directive and in accordance with the decisions of, and the principles laid down by, the ECJ.

However, the ECJ and domestic decisions concern a worker's entitlement to the four weeks' leave under the Working Time Directive, not the additional 1.6 weeks' leave under reg.13A of the Working Time Regulations (Sood Enterprises Ltd v Healy [2013] IRLR 865 EAT). This means that, when workers are on sickness absence, the rules governing accrual and carry-over of annual leave relate to the four-week leave entitlement only.

Entitlement to annual leave during sickness absence

Workers who are absent on sick leave continue to accrue their four-week entitlement to paid annual leave under the Working Time Directive (2003/88/EC) (Stringer and others v HM Revenue and Customs sub nom Commissioners of Inland Revenue v Ainsworth and others; Schultz-Hoff v Deutsche Rentenversicherung Bund [2009] IRLR 214 ECJ).

Sickness absence and carrying leave over into next leave year

Regulation 13(9) of the Working Time Regulations 1998 (SI 1998/1833) requires workers to take the four-week leave entitlement in the holiday year in which it is accrued, which means that workers have no right to carry forward untaken holiday to the next year.

However, where workers are prevented from taking their four-week entitlement to paid annual leave due to sickness absence, they must be allowed to take it following their return to work. This is the case even if it means that the leave must be carried over into the next holiday year (Stringer and others v HM Revenue and Customs sub nom Commissioners of Inland Revenue v Ainsworth and others; Schultz-Hoff v Deutsche Rentenversicherung Bund [2009] IRLR 214 ECJ).

If workers do not wish to use their four-week entitlement to paid annual leave during a period of sickness absence, they must be allowed to take annual leave at an alternative time, if necessary, by being permitted to carry leave over to the next holiday year (Pereda v Madrid Movilidad SA [2009] IRLR 959 ECJ).

The domestic courts must interpret the Working Time Regulations 1998 by reference to the principles laid down by the European Court of Justice on carry-over of the four-week leave entitlement. This means that employers must follow Stringer and Pereda when handling sickness absence and annual leave issues.

Period of carry-over

Workers who have been unable or unwilling to take their annual leave entitlement during a period of sickness absence are not able to carry over their untaken annual leave indefinitely (KHS AG v Schulte [2012] IRLR 156 ECJ).

In Schulte, the European Court of Justice stated that a right to an unlimited accumulation of paid annual leave acquired during long-term sickness absence would not reflect the purpose of the right to paid annual leave, which is to enable the worker to rest from carrying out work and to enjoy a period of relaxation and leisure. The ECJ said that a carry-over period must enable the worker to have rest periods that are staggered, planned in advance and available in the longer term. The ECJ held that the carry-over period should be substantially longer than the leave year in which the entitlement has accrued and that, in the particular case, a period of 15 months was permissible.

The Employment Appeal Tribunal (EAT) applied Schulte in Plumb v Duncan Print Group Ltd [2015] IRLR 711 EAT. The EAT held that reg.13(9) of the Working Time Regulations 1998 (SI 1998/1833) should be read as permitting workers to take annual leave within 18 months of the end of the leave year in which it accrued where the workers were unable or unwilling to take annual leave because they were on sick leave.

Annual leave notice requirements during illness

Regulation 15 of the Working Time Regulations 1998 (SI 1998/1833) governs the notification requirements for workers to request annual leave.

In NHS Leeds v Larner [2012] IRLR 825 CA, the Court of Appeal held that the requirement under reg.15 to make a leave request has no application where the worker has not returned from sickness absence during the leave year and has had no opportunity to take annual leave. The Court of Appeal found that in those circumstances there is no requirement to make a request during the period of sickness absence in order to carry over the accrued annual leave.

Sickness during a planned period of annual leave

Workers who fall ill either before or during a period of annual leave must be allowed to take the period of untaken leave at a later date (Asociación Nacional de Grandes Empresas de Distribución (ANGED) v Federación de Asociaciones Sindicales (FASGA) and others [2012] IRLR 779 ECJ).

Where the illness began during the period of annual leave, it would be reasonable to require the worker to provide proof of illness during the holiday.

Sickness absence and pay in lieu of holiday on termination

Workers who have been on sick leave and who have been unable or unwilling to take annual leave are entitled to a payment in lieu of accrued leave on termination of the employment relationship (Stringer and others v HM Revenue and Customs sub nom Commissioners of Inland Revenue v Ainsworth and others; Schultz-Hoff v Deutsche Rentenversicherung Bund [2009] IRLR 214 ECJ) (see Entitlement to pay in lieu of holiday on termination of employment).

Additional resources on holiday and sickness absence interplay

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"How to" guidance

Entitlement to pay in lieu of holiday on termination

Leave accrued but untaken under the Working Time Regulations 1998 (SI 1998/1833) may not be replaced by a payment in lieu, except where the employment is terminated (regs.13(9) and 13A(6)(a)).

Regulation 14 requires the payment in lieu of accrued but untaken statutory leave entitlement to be calculated up to the date on which the termination takes effect (the termination date). A worker who resigns or is dismissed part way through a holiday year is entitled to pay in lieu of statutory holiday that has accrued, and has not been taken during that holiday year up to the termination date. A worker is entitled to a payment in lieu of accrued unused statutory holiday no matter how short a period the worker has worked.

In the absence of a relevant agreement (see Meaning of "relevant agreement" and "workforce agreement"), payment in lieu of unused holiday on the termination of a worker's employment must be calculated according to the formula:

(A x B) - C

  • A is the period of leave to which the worker is legally entitled in a full holiday year under regs.13 and 13A of the Working Time Regulations 1998;
  • B is the proportion of the holiday year that expired before the termination date; and
  • C is the period of leave already taken by the worker between the beginning of the holiday year and the termination date.

This calculation applies even if the individual has been summarily dismissed for gross misconduct (Witley and District Men's Club v Mackay [2001] IRLR 595 EAT).

A worker whose employment is terminated after a period of long-term sickness absence may also be entitled to a payment in lieu of accrued leave (four-week minimum entitlement under reg.13) accumulated over different holiday years, but not taken due to sickness absence (see Sickness absence and carrying leave over into next leave year).

In The Sash Window Workshop Ltd and another v King [2018] IRLR 142 ECJ, the European Court of Justice held that a worker is entitled to a payment in lieu of accrued but untaken leave (four-week entitlement under reg.13) accumulated over different holiday years in circumstances where the worker was wrongly categorised as self-employed and, as a result, denied statutory holiday during those holiday years.

Payment must be made for accrued but untaken annual leave on the death of a worker (Bollacke v K+K Klaas & Kock BV & Co KG [2014] IRLR 732 ECJ).

Additional resources on entitlement to pay in lieu of holiday on termination

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Policies and documents

Worked examples

Overpaid holiday pay on termination

A worker who has taken more statutory holiday than they have accrued from the beginning of the holiday year to the date of termination may legitimately be required to repay the overpaid holiday pay or have the overpayment deducted from their final pay. A worker's contract should, however, be clear on this point because, where a worker has taken proportionately more leave in that year than that to which they are entitled under the Working Time Regulations 1998 (SI 1998/1833), the employer cannot recover the excess unless express provision has been made to this effect (Hill v Chapell [2003] IRLR 19 EAT).

Additional resources on overpaid holiday pay on termination

FAQs

Meaning of "relevant agreement" and "workforce agreement"

A "relevant agreement" is defined in reg.2 of the Working Time Regulations 1998 (SI 1998/1833) as a "workforce agreement", any provision of a collective agreement incorporated into the worker's contract, or any other agreement that is legally enforceable as between the worker and employer.

A "workforce agreement" is defined in reg.2 as an agreement that satisfies the conditions set out in sch.1. To satisfy sch.1, an agreement must be one between an employer and its workers, or an identifiable group of workers (or between the employer and workers elected to represent the interests of the entire workforce or an identifiable group of workers), which includes matters such as the timing of annual holiday and the method for calculating accrued holiday pay.

To be valid, the agreement must be in writing, have effect for a specified period not exceeding five years, and apply either to all members of the workforce or to all members of the workforce who belong to a particular group - excluding workers whose terms and conditions of employment are provided for, wholly or in part, in a collective agreement.

Additional resources on the meaning of "relevant agreement" and "workforce agreement"

FAQs

Enforcement and remedies

Any worker denied their right to statutory paid annual holiday or payment in lieu of untaken holiday accrued at the date of termination may complain to an employment tribunal. Depending on the nature of the claim, statutory holiday claims may be brought under:

  • reg.30 of the Working Time Regulations 1998 (SI 1998/1833); and/or
  • s.23 of the Employment Rights Act 1996.

Claims under the Working Time Regulations

Workers who have been denied their right to take statutory annual leave under the Working Time Regulations 1998 (SI 1998/1833) may complain to an employment tribunal under reg.30. Should a complaint be upheld that the employer has refused to permit a worker to take statutory annual leave, the tribunal will make a declaration to that effect and may order the employer to pay such compensation to the worker as it considers just and equitable in all the circumstances.

Where the employer has failed to pay holiday pay under reg.14 or reg.16 of the Working Time Regulations, the tribunal will order the employer to pay the amount due to the worker.

Claims under reg.30 must be brought before the end of the period of three months beginning with the date on which it is alleged that the exercise of the right should have been permitted or the payment should have been made. The time limit may be extended where the tribunal considers it was not reasonably practicable for the complaint to be presented before the end of that period of three months.

Claims under the Employment Rights Act 1996

A worker may also bring a claim for unlawful deduction of wages under s.23 of the Employment Rights Act 1996 in respect of outstanding holiday pay. Claims may be brought for a failure to pay holiday pay on a single occasion or an ongoing failure to pay holiday pay over a period of time, which may amount to a series of deductions.

A claim for unlawful deduction of wages must be brought within three months of the failure to pay holiday pay unless it forms part of a series of deductions, in which case the time limit starts to run from the last deduction in the series. The time limit may be extended where the claimant is subject to the requirement for early conciliation or where the tribunal considers it was not reasonably practicable for the claimant to bring the claim in time.

The Deduction from Wages (Limitation) Regulations 2014 (SI 2014/3322) amend s.23 of the Employment Rights Act 1996 to limit claims for unlawful deductions from wages, including a claim for holiday pay, to a period of two years from the date on which the worker presented their tribunal claim. However, following the European Court of Justice judgment in The Sash Window Workshop Ltd and another v King [2018] IRLR 142 ECJ, it is uncertain if this limitation on unlawful deductions from wages claims applies to claims for historical non-payment of holiday pay under the Working Time Directive (2003/88/EC). The Deduction from Wages (Limitation) Regulations 2014 do not apply in Northern Ireland, where employers could be liable for holiday pay claims dating back many years.

Under the Employment Rights Act 1996, workers may not be dismissed or selected for redundancy (s.101A and s.105(4A)), or subjected to any other detriment (s.45A) for challenging their employer's refusal of, or failure to acknowledge, their rights under the Working Time Regulations 1998, or for bringing proceedings before a tribunal or court (s.104).

Additional resources on enforcement and remedies

FAQs

Contractual holiday

The Working Time Regulations (SI 1998/1833) set out the minimum entitlement to paid holiday for all workers. However, employment contracts may entitle workers to more generous periods of paid holiday, more generous payment terms or different ways that workers can exercise their holiday rights. Under reg.16(5) of the Working Time Regulations 1998, any contractual remuneration paid to a worker in respect of a period of leave goes towards discharging the employer's liability to make payments under the Regulations in respect of that period.

The right to holiday pay under the Working Time Regulations does not undermine a more generous contractual entitlement. In Beijing Ton Ren Tang (UK) Ltd v Wang EAT/0024/09, the employee had an oral agreement with her employer that she was entitled to 30 days' holiday each year with pay in lieu of any days that she did not take at the end of her employment. The employee had 131.5 days of unused holiday at the termination of her employment, which she sought to recover as holiday pay. In rejecting the employer's argument that the oral agreement between employer and employee was void by virtue of reg.35(1)(a) of the Working Time Regulations 1998, which renders any provision in an agreement void in so far as it purports to exclude or limit the operation of any provision of the Regulations, the Employment Appeal Tribunal relied on reg.17. Regulation 17 provides that, where a worker has entitlements under two separate provisions, they may take advantage of whichever right is more favourable. The EAT held that "insofar as the claimant's contractual right is to recover all past leave pay in lieu, not simply that in the final year of employment, that provision is more favourable to the claimant than her rights under reg.13(9) and thus is permissible under reg.17". The EAT concluded that there had been no breach of the Regulations so as to engage reg.35(1)(a).

Key references

Legislation

Codified Working Time Directive (2003/88/EC)
Employment Rights Act 1996
Working Time Regulations 1998 (SI 1998/1833)

Guidance

Holiday entitlement