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Is compensation due for unused holiday?

Public debate on the Taylor Review and an upcoming judgment of the ECJ will keep holiday pay on the radar

As we near the end of the year many UK employees and workers may be considering how to use up their paid holiday entitlement. For full-time employees and workers that will be 28 days inclusive of public holidays. Many will also have some additional contractual holiday entitlement provided by their employers.

While many employees will be quick to plan, book and take all of their holiday others find it difficult to take any or all of it each year. So what can these people do? Take it in a subsequent year? Or get paid for it instead?

A starting point is to look at an individual’s employment contract. Does it provide for carrying forward holiday or allow for holiday not taken to be paid out? If the contract is silent then the first thing to consider is why the holiday hasn’t been taken. If it is because of maternity leave or sickness then the employee will be entitled to carry forward the holiday to a subsequent year. However, there are time limits in which the holiday must be taken after the employee returns to work.

If the holiday is not taken because the employee didn’t organise anything then they will lose the holiday. However, if the employee can legitimately claim that their employer failed to either give them an opportunity to take the holiday or refused their requests for holiday then they may potentially be able to carry forward that holiday indefinitely.

This potential entitlement to carry holiday over follows a recent case before the European Court of Justice. While judgment is still awaited, the attorney general to the ECJ has recently issued his opinion that provides for this ability to carry forward and it is normally the case that the ECJ follows the attorney general’s opinion. This could lead to a situation where employees who can’t take their holiday because of maternity leave or sickness will potentially be in a worse position to those employees who can’t take it because of a more general inability. However, much will depend upon the wording of the ECJ judgment.

In terms of being 'paid out' for holiday, unless the employment contract says differently employees can only be paid out for any unused holiday at the end of their employment and not during their employment.

Employees should document any requests for holiday and they should also retain evidence of any rejections to ensure that they are best able to argue their position later. Employers should make it clear in their employment contracts that their employees are entitled to and will be encouraged to take their full holiday entitlement. Employers should also consider reminding employees of their remaining holiday balance before the end of the year and encouraging them to take it.

This message is reinforced by the recently published Taylor Review into modern working practices. The report recommends that the government should do more to promote awareness of holiday pay entitlements. In particular the reference period for calculating holiday pay should be increased from 12 to 52 weeks for those without normal working hours. This would produce a fairer result for employees or workers whose hours fluctuate significantly over the year.

Although the Taylor recommendations will take some time to implement, the public debate on the report and the upcoming judgment of the ECJ will keep holiday pay on the radar over the coming months.

Ed Stacey is a partner and head of employment law at PwC