Employment law: what employers must know about holiday pay in 2019

It may have been an unpredictable summer as far as the weather was concerned, but one thing remains constant for employers in the summer season – challenges concerning annual leave allocation.

‘Use it or lose it’ – why the onus is on employers

For many years, employers have offered a ‘use it or lose it’ policy to workers on their annual holiday allocation; those who don’t use up their stipulated days before a given date are unable to carry it over into the next year, thus ‘losing’ their holiday time or equivalent pay.  However, a ruling last year by the European Court of Justice (ECJ) has placed greater emphasis on this kind of policy – and particularly on how employers must communicate it.

In November 2018, the ECJ held in favour of two German employees in separate cases which were brought together to the Court. It said that a worker who does not apply to take annual leave during employment does not automatically lose the right to take leave, or to receive a payment in lieu of accrued untaken leave at the end of their employment.

Instead, the Court ruled, the onus is on employers to “specifically and transparently” demonstrate that the worker has been given the opportunity to take the leave.  If not, the holiday can be carried over.

What does this mean for employers? In summary, it requires regular and ongoing communication, in plenty of time for workers to book the time off. I would suggest that the policy should be included in company inductions and reminders diarised at key points in the year; like now, when many workers are reaching the midway point in their holiday year.

It is worth noting that this ruling relates to the first four weeks of statutory holiday pay, which is enshrined in the EU’s Working Time Directive. In the UK, employers are required to offer 5.6 weeks of holiday (28 days) under the Working Time Regulations 1998 (pro-rated for part time staff). The remaining 1.6 weeks is a UK-specific entitlement and not affected by the ECJ’s ruling.

Calculating holiday pay for part-time workers

There is another recent case which impacts holiday pay calculations, this time specifically for part-time workers and particularly those on a zero-hours contract.

In August 2019, The Court of Appeal dismissed a case brought forward by the Harpur Trust on behalf of Bedford Girls School concerning the holiday pay of a music teacher on a zero-hours contract.

The Harpur Trust had said that casual and term-time staff should be paid an annual leave allowance of 12.07%. The 12.07% figure was calculated using the 5.6 weeks holiday, divided by 46.4 weeks – which excludes the 5.6 weeks during which the worker was not at work to accrue annual leave.

However, following an Employment Tribunal and subsequent Employment Tribunal Appeal brought by the worker in question, the court said that the teacher was entitled to the full 28 days (5.6 weeks) under the Working Time Regulations on the basis of a full week’s pay calculated in accordance with sections 221 to 224 of the Employment Rights Act 1996.

By taking her average weekly remuneration for the 12 weeks prior to the calculation date and multiplying it by 5.6, this brought her holiday pay to around 17.5% of annual pay, compared with 12.07% of annual pay for staff working the whole year.

Ultimately, it means any member of staff employed on a zero-hours contract, who may not work or be paid for certain parts of the year, is still entitled to receive a minimum of 28 days’ paid annual leave. This must be based on the worker’s weekly pay or, if the pay is irregular, on the average payment for the preceding 12-week period.

The ruling could have a significant impact not only on those in the teaching profession, but also other sectors where zero-hour contracts are commonplace. Employers with large numbers of zero-hour workers could find themselves facing higher holiday pay budgets.