Roll up, roll up! - The practice of paying temps a rolled up sum

The practice of paying temps a ërolled upí sum to cover their basic and holiday pay is commonplace within the staffing industry. The question remains as to whether this is an efficient and harmless payment method, bringing benefits to the temp and staffing company alike, or a risky step potentially exposing staffing companies to back dated claims for ëunpaidí holiday leave payable at an enhanced rate.

Advantages
ëRolling upí holiday pay has advantages for temps as it ensures that they receive advance payments that can be invested or used as a deposit to purchase a holiday. It also offers the possibility of enhanced payment to a temp who chooses to work overtime. Most staffing companies prefer to pay holiday pay as a ërolled upí sum as this alleviates the administrative burdens associated with the otherwise complex calculations and payment obligations.

Legislation
The ëWorking Time Regulations 1998í (ëWTRí) are intended to give effect to the requirements of the European ëWorking Time Directiveí (ëthe Directiveí). These are the two pieces of legislation that staffing companies have to comply with when paying holiday pay. Unfortunately neither the Directive nor the WTR provides adequate guidance as to whether a staffing company can discharge its obligations to pay holiday pay by ërollingí this into the hourly rate paid to the temp or whether they need to make payment of holiday pay at the time the holiday is actually taken.

Court Decisions
The English Courts, who have been asked to rule on the legitimacy of ërolling upí holiday pay, have decided that the Regulations do permit ërolled upí holiday pay ñ subject to certain provisoís. The latest guidance from the Employment Appeals Tribunal (ëEATí) suggests that, in order to make the practice legitimate, there must be a genuine agreement for holiday pay to be paid as a true addition to the contractual rate of pay and that this must be clearly evidenced in the relevant documentation.

Further guidance is given as to how this agreement can be evidenced, this includes clear provisions in the contractual relationship showing the percentage or amount allocated to holiday pay, for the amount of holiday pay to be shown on the payslip and for records to be kept as to when holidays are taken.

Scotland
Although interpreting the same legislation, the Scottish Courts have viewed matters quite differently from the English Courts. In Scotland ërolling upí holiday pay is not a legitimate means of paying the worker for their holiday.

A Scottish staffing company that pays holiday pay on a ërolled upí basis may be exposed to a claim for ëunpaidí holiday pay, which may potentially be calculated at the enhanced rate it has been paying to the worker.

Uncertainty
The English Courts have ruled that the convenient practice of paying ërolling upí holiday pay is compatible with the Directive because there is nothing within the Directive stating that such pay must be paid at the time the holiday is taken. The Scottish Courts conversely believe that it is the aim of the Directive that this is when the payment is made.

Because of the contradiction between the English and Scottish interpretations the European Court of Justice (ëECJí) have been asked by the Court of Appeal to rule upon whether the practice of paying ërolled upí holiday pay is compatible with the Directive. Until the ECJ gives its ruling it is likely that the law in England and Scotland will continue to differ.

Decisions of the ECJ are notoriously difficult to predict. This is because the ECJ applies different rules than the Courts of Scotland or England when interpreting legislation. The ECJ places much less emphasis on the literal meaning of the rules and much more emphasis upon what it considers the intention of the rules to be.

It is entirely conceivable that the ECJ will rule against the legitimacy of ërolling upí holiday pay; any such ruling will then apply throughout the EU.

Best advice
Staffing companies in England and Wales need to make a commercial decision as to whether to continue the practice of paying ërolled upí holiday pay. There is a real possibility that the ECJ could rule that the practice is unlawful. If this happens, staffing companies who practice ërolling upí could face significant backdated claims for unpaid holidays.

It is ëbest adviceí to desist from paying holiday pay on a ërolled upí basis and to rather make appropriate payments as and when the worker takes their holiday leave.

Staffing companies who consider that the practice of ërolling upí is essential to their operations should take specialist advice as to how the associated legal and financial risks can be minimised.