In 2006 the European Court of Justice ruled that rolled up holiday pay was illegal, however, almost ten years later some businesses in the UK still use this to pay casual staff on zero hours contracts. The law in the UK remains confusing on this issue so here are some tips on rolled up holiday pay.
The decision by the ECJ decided three things:
1) it is contrary to the working time directive for holiday pay for statutory holidays to be rolled up into normal pay instead of actually being paid during the holiday.
2) Countries who are members of the EC must take ‘appropriate measures’ to ensure that the practice of rolling up ceases.
3) However sums already paid would still count towards pay for holidays.
When the decision came from the ECJ it took a year for the UK government to state that rolled up holiday pay was unlawful. However, the focus was on the worker to approach their employer to re negotiate the contract and if the employer was unwilling to then the worker could go to an employment tribunal. Many casual workers on zero hours contracts have precarious security with their employment as the terms are mutual no obligation. The employer has no obligation to offer the worker work and under these circumstances an employer if challenged could arguably decide not to provide any further work to that person. For the worker to take a case to an employment tribunal they would need to pay a hefty fee which is arguably prohibitive for someone who has received a relatively low wage then ultimately may have no income. These two things create a barrier for a worker trying to sort out rolled up holiday with their employer.
Nevertheless, the ideal thing is for an employer to review and amend a zero hours contract that operates rolled up holiday pay and this is what I would advocate given that the government decreed, in accordance with the Working Time Directive, that holiday pay should be paid at the time of holiday. To renegotiate the contract there should be consultation and written agreement in the form of a signed new contract. To comply with the government’s proposal an employer should keep accurate records of hours worked and provide holiday pay when the worker actually requests holiday.
However, this can be quite onerous if a business operates with a large pool of casual workers on zero hours contracts and in many cases casual workers like to have rolled up holiday pay. If a business wishes to continue to operate rolled up holiday pay because they find that easier there are ways to reduce the risks and costs of an employment tribunal claim.
The main principle is to operate rolled up holiday pay comprehensively and transparently. Workers should clearly know and understand how the process will operate. As with all things HR, written records are essential for the paper trail. Rolled up holiday pay should be clearly stated in the contract showing the 12.07% allowance in the hourly rate. Wage slips should also clearly show the percentage payment of rolled up holiday pay. In addition the employer should operate a holiday booking system where workers have to book their 5.6 weeks pro rata holiday and be encouraged to take their entitlement in a twelve month period. If that is proving difficult because a worker is doing many hours on a weekly basis that is a definite impetus for the employer to review and amend the contract to accurately reflect the working practices with an employment contract.