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Calculating holiday pay anything but simple

It’s HR focus week on Bdaily. Here, Chris Davies, professional support lawyer at Gateley, delves into the inherent difficulties of calculating employees’ holiday pay.

The Working Time Regulations 1998 require employers to provide all their workers with paid holiday.

Sounds simple, but in practice – as many in HR will know – working out how many days leave each worker should get and the amount that they should be paid can be anything but simple.

One of the problems is that the regulations are intended to implement the EU Working Time Directive, yet there are key differences. It has been firmly established now that the prohibition on carrying over leave in the regulations cannot prevent an employee who has been too sick to take their leave from carrying it over.

However, there are some unanswered questions.

Can the employee carry over the 5.6 weeks holiday provided for in the regulations, or just the four weeks in the EU directive?

The recent case of Sood Enterprises Ltd v Healy held that only the balance of four weeks’ leave could be carried forward. The prohibition on carrying over in the regulations was valid in relation to any entitlement that exceeded the four week minimum guaranteed by the directive.

What about holiday pay where the employee regularly works overtime? Should the holiday pay take account of all hours worked? The answer was thought to be that it depends on whether the overtime was compulsory.

However, the recent case of Neal v Freightliners Ltd has now cast doubts on that approach, as it suggests the key question was whether pay was intrinsically linked to performing tasks under the employment contract.

This led to the conclusion that holiday pay should take into account the extra hours and the premium rates paid for overtime, even if it was voluntary. The decision has been appealed but pending the further hearing, the risks are clear.

Where an employee resigns or is dismissed they will be entitled to be paid in respect of accrued but untaken leave? Any clause in a contract that provides for no payment on termination will be void.

However, can the contract of employment provide for just a token payment of, say, £1? In the recent case of Podlasiak v Edinburgh Woollen Mill Limited it was held that it could not.

The employment judge considered that the payment had to be calculated to reflect normal pay, in order to put the worker in a comparable position to that which they would have been in had they exercised the right to take paid annual leave during employment.

This was posted in Bdaily's Members' News section by Gateley .