Is it permissible to award greater holiday entitlement to employees who have, for example, 10 years' service?
As rewarding long service raises a risk of age discrimination against younger employees, employers can award additional holiday entitlement to employees with long service only if this falls within the "business need" exception for service-related benefits. Paragraph 10 of sch.9 to the Equality Act 2010 provides an absolute exception from the Act for service-related benefits awarded by reference to a length of service criterion of up to five years. It also allows a length of service criterion of more than five years where it "reasonably appears" to the employer that the way in which the criterion is used "fulfils a business need", for example by encouraging the loyalty or motivation, or rewarding the experience, of some or all of its workers. The "business need" test is not the same as the standard age discrimination objective justification test, because there is no requirement to show proportionality. Therefore, the standard of proof necessary for an employer to take advantage of this exception is lower.
Many benefits based on length of service arguably seek to reward loyalty or experience. However, the employer will still need evidence from which it can reasonably conclude that there is a benefit to the business. This might include information gathered through monitoring, staff engagement surveys or focus groups. Therefore, the employer should go through a process of actively considering whether or not the long-service criterion it imposes for receipt of increased holiday entitlement does actually fulfil a business need, and should set out in writing its reasoning and conclusions.