The ECJ decision on rolled up holiday pay

The European Court of Justice has now handed down its decision in respect of rolled up holiday pay. However this is not the clear and definitive statement that many had hoped for and is likely to lead to the government legislating further on the working time regulations

The ECJ has found that paying holiday pay as an additional percentage, with a workers normal wages rather than at the time when they take the leave, is unlawful. The basis for this decision is that the European directive on this issue states that a worker cannot be provided with payment in lieu of their holiday pay, unless employment is terminated. Therefore if a worker is paid holiday pay each week or month, this may encourage a situation where the actual leave is not being taken.

At first sight this would appear to be a very clear decision that workers can no longer be paid rolled up holiday pay. However the ECJ was also asked to decide on another point. If a worker has in fact been paid on a rolled up basis, i.e. in advance with each weekly or monthly payment, can the advance payments be deducted from any holiday pay which would otherwise be due at the time the holiday is taken?

The answer given is yes, on certain conditions. The ECJ has decided that payment made ìtransparently and comprehensibly, as holiday payî can be off set against amounts due for holiday pay. This means that the parties must agree openly and in advance that the advance payment is for holiday time, and the payment must be in addition to normal rate

What this leaves is a situation that a worker who has or is being paid holiday pay, as an additional payment with their salary rather than at the time when they take their holiday, could raise a claim to an employment tribunal for that payment. In raising a defence to this, the person responsible for paying holiday pay would have to show that the amounts have already been paid in advance on a rolled up basis, and that the advance payments had been made transparently and comprehensibly.

So should you continue to use rolled up holiday pay? The ECJ says itís unlawful, but also states that if rolled up payments are challenged there is a defence if payment have already been made transparently and by agreement.

The problem is the hassle factor that this result engenders since the outcome is not consistent with the UK Regulations. Because the ECJ recognises this, it has said that ìmembers states are required to take the measures appropriate to ensure that practices incompatible . . . . . . . . . . . . are not continuedî, the result of this will therefore surely be an amendment to the Working Time Regulations, to expressly state that payment for annual leave is to be made at the time the leave is taken.

Until such a time as the government makes any amendment to the existing regulations, the best practice advice, would be to avoid rolled up holiday pay. However if you are or have been using this method, to ensure that the payments are clearly set out in the contract and in the payslip, and are in addition to normal rate. That way, if a claim is brought, you may be able to avoid further payment.

Interestingly the unions are trumpeting that this is a success for all workers! Previously the unions had threatened to recover all payments not made if the ECJ found that rolled up pay was unlawful on the basis that advance payment rolled up could not be set off against sums due during the holiday period. Those threats appear no longer to be applicable.

For more information please call 01273 236236 and ask for Theresa.