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Holiday entitlement and pay

Overview
This section concentrates on holiday entitlement and holiday pay under employment legislation and also the statutory rights of employees and workers under the Working Time (Amendment) Regulations 2007, which came into effect on 1 April 2009. Both employees and workers are covered by this legislation.

On 8 January 2015 the Deduction from Wages (Limitation) Regulations 2014 came into force limiting claims for back pay of incorrectly calculated holiday pay to two years following the EAT decision in Bear Scotland v Fulton. The regulations apply to claims for holiday back pay presented to a tribunal on or after 1 July 2015 (see 'In-depth' section regarding the impact of the regulations on holiday entitlement above 20 days per year).

Key points

  • The minimum statutory requirement for a full time employee is 28 days or 5.6 weeks including public holidays
  • Full-time workers annual holiday entitlement normally accrues at 2.33 days per month from the first day of employment
  • Part-time workers are also entitled to a minimum of 5.6 weeks of paid holiday each year, calculated on a pro-rata basis, according to the hours they work.
  • Contracts of employment may stipulate whether all public holidays or only particular bank holidays are included in their annual entitlement
  • Taking unauthorised annual holiday may lead to disciplinary action being taken by the employer
  • In addition to the statutory minimum holiday entitlement an organisation may adopt the use of a time-in-lieu or flexi-time system and/or the use of unpaid holiday entitlement in addition to paid holiday entitlement
  • The law has changed significantly in respect of the calculation of holiday pay so that now regular overtime and commission payments may need to be included (see 'In-depth' section).

Recent developments

Annual leave and the 2020 coronavirus outbreak

As a result of the coronavirus outbreak, organisations may see an increasing number of staff wanting to cancel pre-booked periods of annual leave. Whilst it is up to the employer whether they choose to approve or deny such requests, they should consider that permitting this may be a key way of maintaining staff morale. 

If a business has to go into a temporary closure, or an employee is asked to self-isolate but feels well enough to work, permitting a period of annual leave could be an alternative to laying-off staff, or a solution if an employee cannot work from home. However, it should be remembered that organisations must provide at least twice the amount of time of the leave they want staff to take if they wish to enforce it. In this situation, they should instead seek to negotiate a period of leave. 

31 March update

The Working Time Regulations have been amended to give workers an entitlement to carry over 4 weeks of their annual leave if they are unable to take it because of coronavirus. This may be because: 

  • they’re self-isolating or are too sick to take holiday before the end of their leave year
  • they’ve been temporarily sent home as there’s no work (‘laid off’ or ‘put on furlough’)
  • they’ve had to continue working and could not take paid holiday

 Leave can be carried over into the next two leave years after 2020. This only applies to the first four weeks of leave under the Regulations. The other 1.6 weeks of stat min leave is already capable of being carried over to the next leave year with agreement from the employer and the new laws do not change this. This means that all stat min annual leave accrued in this leave year is now capable of being carried over, in the following way: 

  • 4 weeks (legal entitlement to be carried over to next two leave years)
  • 1.6 weeks (employers can agree that this be carried over to the next leave year. If employers do not already have rules in place about carry over of this portion, then it would be advisable to have some now for clarity purposes (whether to allow it or not). If they have rules which do not permit carry over of this portion to the next leave year, they may want to consider relaxing these)
  • Anything above stat min (down to employer’s rules and some employers already have rules on employer buy back)

 Bank holidays that cannot be taken because of the above reasons are within the carry over rules.

 Annual leave continues to accrue during lay off/furlough.

Government consults on introducing single body to enforce employment rights

Following a proposal contained in the Good Work Plan, the Department for Business, Energy and Industrial Strategy (BEIS) has released a consultation examining whether a single enforcement body should be introduced for employment rights and obligations.

A single enforcement body will look to carry out enforcement which is currently undertaken by others, including holiday pay, the minimum wage (currently enforced by HMRC) and agency worker rights (currently enforced by the Employment Agency Standards Inspectorate).

The consultation asks interested parties to submit their views on the remit and enforcement powers of this body, as well as asking whether it should carry out enforcement of statutory sick pay and unpaid tribunal awards. More information can be found in our news article.

Voluntary overtime to be included in holiday pay, rules Court of Appeal

The highest decision on including voluntary overtime payments in holiday pay calculation has been handed down by the Court of Appeal. In East of England Ambulance NHS Trust v Flowers, it was confirmed that voluntary overtime which is 'sufficiently regular and settled' will be classed as normal remuneration, so should be taken into account for holiday pay calculations.

Whether voluntary overtime is sufficiently regular and settled, will be a question that is determined on the facts of each case.

Changes to holiday pay calculations from April 2020

An independent review into modern ways of working, and the calculation of holiday pay for flexible workers, was carried out by Matthew Taylor and resulted in the Good Work Review which was published in July 2017.

Following a consultation on this matter, the government’s ‘Good Work Plan’ released in December 2018 has confirmed that legislation will be introduced to increase the holiday pay calculation reference period. From 6 April 2020, the reference period will be extended from 12 weeks to 52 weeks, to allow a fairer approach to holiday pay when workers carry out flexible working hours.