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Legal-ease: Paid leave entitlement

As peak holiday season approaches we recap the law around paid leave entitlement

Most workers in the UK have the right to 5.6 weeks’ paid leave under the Working Time Regulations 1998 (WTR).

The WTR state that a worker is entitled to be paid ‘a week’s pay for a week’s leave’. However, the calculation of a week’s pay is within yet another piece of legislation: the Employment Rights Act 1996 (ERA).

The situation has been further confused in recent years by various court decisions, culminating in BEAR Scotland and others v Mr David Fulton and others. This case determined that UK domestic law has failed to apply the requirements of the EU Working Time Directive (EU WTD).

In particular, the UK’s week’s pay rules do not provide workers with their EU holiday pay entitlement, which should be based on their ‘normal remuneration’.

The situation we are left with, therefore, is not a straightforward one. The period of leave provided to workers under the EU WTD is four weeks. Pay for this period must now be determined in accordance with the decision in BEAR Scotland. However, any remaining weeks of holiday (being on a statutory basis 1.6 weeks) are assessed under the usual UK weekly pay rules.

For workers on a settled pattern of work the amount of holiday pay should be fairly easy to establish.For those who are not the preceding 12 weeks provides the relevant reference period. Any payment to be claimed has to be ‘regular’ and also have a direct
link to the work carried out. This has resulted in numerous cases arguing what should and should not be included within ‘normal remuneration’.

The position presently is that the following kinds of payments should all be included for the purposes of calculating holiday pay:

  • Non-guaranteed overtime (where the employer is not obliged to provide the overtime, but the worker is obliged to work it if requested).
  • Voluntary overtime (if sufficiently regular).
  • Results-based commission (or similar payments).
  • Incentive- or performance-based bonuses.
  • Overtime pay (whether guaranteed or not, whether compulsory or not).
  • Standby, shift or call-out payments.
  • Travel and other allowances treated as taxable remuneration.

The question then arises regarding what happens if a worker doesn’t take holiday leave? Workers in the UK are required to ‘use it or lose it’ in the relevant leave year. But is the entitlement to holiday pay dealt with similarly if the leave hasn’t been given or taken?

There is conflicting case law on this point, but the present thinking is that workers are only entitled to statutory holiday pay if they actually take the statutory holiday or give notice to their employer that they wish to take such holiday.

The position being that if workers were able to receive statutory holiday pay without taking the time off, this could create a financial incentive for them not to exercise their holiday rights, and so would be contrary to the purpose of the law.

Andrea London is a partner and head of the employment department at Fletcher Day

This piece appeared in the June 2019 issue. Subscribe today to have all our latest articles delivered right to your desk