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Accrual of holiday pay

18 September 2012

1 Introduction

1.1 Who should read this practice note?

Managing partners of solicitors' firms and partners with responsibility for human resources.

1.2 What is the issue?

This practice note advises on the following issues:

  • entitlement to paid annual leave
  • how entitlement is affected by working part-time, fixed term or on a temporary contract
  • the difference between contractual and statutory entitlement

Throughout this advice we look at the Working Time Regulations 1998 (WTR 1998) as currently amended, which implements the Working Time Directive (WTD).

This advice also encompasses and updates the advice previously contained in the practice note: Accrual of holiday while on sickness absence - 09 March 2010.

1.3 Status of this information

Practice notes are issued by the Law Society as a professional body for the benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. Solicitors are not required to follow them.

They do not constitute legal advice and, while care has been taken to ensure that they are accurate, up-to-date and useful, the Law Society will not accept any legal liability in relation to them.

For queries or comments on this practice note contact the Law Society's Practice Advice Service.

1.4 Terminology in this practice note

Must- A specific requirement in legislation or of a principle, rule, outcome or other mandatory provision in the SRA Handbook. You must comply, unless there are specific exemptions or defences provided for in relevant legislation or the SRA Handbook.

Should

  • Outside of a regulatory context, good practice for most situations in the Law Society's view.
  • In the case of the SRA Handbook, an indicative behaviour or other non-mandatory provision (such as may be set out in notes or guidance).

These may not be the only means of complying with legislative or regulatory requirements and there may be situations where the suggested route is not the best possible route to meet the needs of your client. However, if you do not follow the suggested route, you should be able to justify to oversight bodies why the alternative approach you have taken is appropriate, either for your practice, or in the particular retainer.

May- A non-exhaustive list of options for meeting your obligations or running your practice. Which option you choose is determined by the profile of the individual practice, client or retainer. You may be required to justify why this was an appropriate option to oversight bodies.

SRA Code - SRA Code of Conduct 2011  

2007 Code - Solicitors’ Code of Conduct 2007  

2 Entitlement to statutory paid annual leave

2.1 Who qualifies for statutory paid annual leave?

The WTR 1998 apply to 'workers', which includes employees, agency workers, temporary workers, freelancers etc but not the genuinely self employed (Regulation 2).

There is no minimum period of continuous service required to qualify for statutory annual leave, but a worker whose employment begins part way through a leave year has a pro-rata statutory holiday entitlement for that year.

2.2 How much statutory paid annual leave do workers get?

A worker is currently entitled to 5.6 weeks' paid annual leave consisting of four weeks' basic entitlement (Reg 13(1) implementing the right in Article 7 WTD) and 1.6 weeks' additional entitlement (Reg 13A(2)). This is subject to an overall cap of 28 days per annum (Reg 13A(3)).

There is no statutory right to time off on public holidays, although this may be provided for in the worker's contract, so any time off for public holidays counts towards the annual statutory holiday entitlement.

2.3 Part-time workers

Under the WTR 1998, part-time workers are entitled to the same 5.6 weeks' annual leave as other workers. By virtue of them working part-time hours the 5.6 weeks will be the pro-rata equivalent of the amount available to a full-time worker.

If a full-time worker is entitled to more than the statutory minimum holiday entitlement, then part-time workers should also receive more than the statutory minimum, which is to be calculated on a pro-rata basis.

This is because under the Part-time Workers (Prevention of Less Favourable Treatment) Regulations 2000, part-time workers must not suffer less favourable treatment (including contractual benefits) than full-time workers on the basis of their part-time status, unless it can be objectively justified.

See 3 - Contractual annual leave
See 7.1 - Legal and statutory regulations

2.4 Fixed-term workers

Under the Fixed-term Employees (Prevention of Less Favourable Treatment) Regulations 2002, fixed-term employees are entitled not to be treated less favourably than comparable permanent employees by reason of their fixed-term status, unless the employer is able to objectively justify the different treatment.

The treatment of fixed-term workers is therefore similar to those of part-time workers in that they are also entitled to 5.6 weeks per annum, pro-rated where they work for less than a full year.

See 3 - Contractual annual leave
See 7.1 - Legal and statutory regulations

2.5 Temporary and casual workers

Temporary and casual workers are entitled to take holiday during their employment and to be paid in respect of unused holiday on termination of employment.

However, as it is not known in advance how long a casual worker will be engaged for and they may not have regular working hours, it can be difficult to work out the amount of holiday to which a casual worker is entitled.

Special rules apply to the accrual of leave during the first year of employment so that workers are deemed to accrue holiday on the first day of each month of employment at the rate of one-twelfth of their statutory entitlement. Fractions of days are rounded up to the nearest half-day during the first year of employment (Reg 15A).

Where they are employed under a global contract, casual workers can accrue holiday even while not working. In such cases, their holiday pay would be calculated on the basis of their average income over the 12 working weeks before the holiday.

Alternatively casual workers may be employed on a series of discrete short contracts, whereby the worker will be entitled to a payment in lieu of holiday each time the assignment comes to an end and no holiday will accrue between contracts.

The amount to which they are entitled can be calculated on the basis of the number of hours (or days) worked. Workers accrue holiday at the rate of 12.07 per cent of the hours worked, which is calculated as follows: 5.6 weeks of leave divided by 46.4 working weeks per year.

Under case law, for example in Cornwall County Council v Prater [2006] EWCA Civ 102, there has been a move toward seeing temporary/casual workers as engaged on a series of discrete employment contracts during each of which there is an employment relationship.

2.6 Notice and counter-notice

Under the WTR 1998, a worker must give notice of at least twice the period of annual leave that they are requesting to take (Reg 15(4)(a)). For example, a worker wanting five days' annual leave must give at least 10 calendar days notice.

A worker's contract may, however, provide for alternative notice provisions, provided they are not less beneficial to the worker than the statutory requirements. See 3 Contractual leave for more details.

An employer has the right to serve a counter-notice refusing the request for annual leave. That counter-notice must be given at least as many calendar days before the proposed leave commences as the number of days which the employer has refused (Reg 15(4)(b)).

For example, if an employer wishes to refuse a worker's request for five days' annual leave, they must give counter notice at least five calendar days before the date on which the leave was intended to start.

If an employer wishes a worker to take annual leave on specified dates, then they must give notice of at least twice the length of the period of leave that the worker is being required to take (Reg 15(4)(a)). For example, an employer requiring a worker to take one weeks' annual leave must give that worker two weeks' notice.

2.7 Pay in lieu of annual leave

Statutory annual leave cannot be replaced by a payment in lieu except where the worker's employment is terminated (Reg 13(9)).

Similarly, an employer may not pay a worker in lieu an enhanced hourly rate rather than allow them to take their statutory holiday in a given leave year. The 'rolling up' of holiday pay was ruled to be contrary to Article 7 of the WTD by the ECJ in Robinson-Steele v PD Retail Service.

2.8 Carry forward of annual leave

The four weeks statutory annual leave entitlement under Reg 13(1) must be taken in the current holiday year and cannot be carried forward (Reg 13(9)).

While the WTR 1998 do not provide for statutory leave to be carried forward into a new holiday year, the contract could provide otherwise, but only in respect of the 1.6 weeks’ additional statutory leave, not the four week statutory entitlement. Further, any carry forward of the 1.6 weeks is limited to the following leave year only (Reg 13A (7)).

Generally, however, workers should be encouraged, at least on health and safety grounds, to use up their entitlement during the current year.

See 3 - Contractual annual leave

3 Contractual annual leave

A worker's contract may contain provisions which are in addition to the rights under the WTR 1998.

Alternatively, there are some provisions of the WTR 1998 which allow for variations to be in a 'relevant agreement', which includes a worker's contract.

This includes, for example, the ability to vary or exclude the notice requirements under the WTR 1998, effectively requiring a worker to give a longer period of notice requesting to take a certain period as holiday.

A worker’s contract may provide that any contractual holiday in excess of the WTR minimum may be carried forward and may permit such carry forward for not only the following leave year but also subsequent leave years.

Any attempt to contract out of any of the worker's minimum rights under the regulations will be void apart from where specifically permitted (Reg 35(1)(a)).

Generally contractual holiday is expressed in days, unlike in the regulations which expresses holidays in weeks. Days should be interpreted as meaning working days, not calendar days.

4 Rates of statutory holiday pay

A worker is entitled to be paid during the statutory annual leave at a rate of a week's pay for each week of leave (Reg 16).

This is calculated in accordance with the method of calculating a week's pay in sections 221-224 of the Employment Rights Act 1996 (ERA). However, there is no cap on the amount of a week's pay for the purposes of the WTR 1998.

  • Workers with normal working hours, whose pay does not vary with the amount of work done, are entitled to their basic salary without any additional bonuses or commission payments.
  • Workers who have normal working hours but whose pay varies according to the amount of work done or time of work, are entitled to holiday pay based on their average pay during those normal working hours over the previous 12 working weeks, including any commission etc which varies in amount.
  • Workers with no normal working hours have their week's pay calculated as an average of all the sums earned during the previous 12 working weeks, including any overtime payments and commission.

You should note that 'normal working hours' include guaranteed overtime payments.

5 Accrual of holiday

Most employment contracts specifically state that holiday accrues proportionately throughout the leave year and that on termination, employees will be entitled to a payment for accrued unused holidays.

In the absence of such provision, there is no automatic presumption that contractual holiday accrues evenly during the leave year.

5.1 Pay in lieu of annual leave

If your employee's contract includes an express right to pay in lieu of untaken holiday on termination you may limit this to holiday accrued during the year in which termination takes place because there is no automatic 'use it or lose it' principle whereby annual leave entitlement not taken is lost at the end of each leave year save where that accrual is as a result of a period of sickness absence (see 5.3 below).

Relevant case law:
Beijing Ton Ren Tang ( UK ) v Wang UKEAT/0024/09
CanadaLife v Gray and Farrar (EAT unreported)
(Word)
Adams and another v Harwich international Port Ltd

5.2 Repaying unaccrued leave on termination of contract

Employers should also ensure that workers' contracts provide for them to repay the employer in the event that, at the termination of the contract, the worker has taken more leave than the pro rata entitlement for that leave year. This is not automatically provided for under the WTR 1998, but may be included in a 'relevant agreement' (Reg 14(4)).

5.3 Accrual of holiday during sickness absence

Statutory holiday entitlement under the WTR 1998 continues to accrue during sick leave.

Employers must allow workers to take annual leave during a period of sick leave, if the worker informs the employer they wish to do so. They can choose to take and be paid for annual leave while off sick, which may be an attractive option if sick pay has expired, or they can choose to take the leave at a later date when they return to work.

The choice does not rest with the employer, who cannot compel the employee to use or delay their annual leave whilst off sick.

However, if annual leave entitlement is not taken by the worker while off sick, the employer must allow a worker who has been on sick leave to take his or her accrued holiday entitlement upon his or her return to work.

There was previously some uncertainty as to what would happen if either the leave accrued over a period of sickness absence could not be taken in the same leave year and/or if the employee had not requested to take their accrued but untaken leave in that leave year where it accrued as a result of sickness absence.

In so far as the 4 week statutory entitlement (Reg 13(1)/Article 7 WTD) is concerned those questions have now been answered by the Court of Appeal decision in the case of NHS Leeds v Larner.

The Court of Appeal held that if a worker is unable or unwilling to take leave because of sickness absence then they must be allowed to take it at another time even if this means it would be taken in the subsequent leave year.

Further, it was held that it is not necessary for the worker to make any request to carry that accrued holiday forward. It would happen automatically if the reason it had accrued but had not been taken was sickness absence.

The Larner case concerned an employee who was claiming payment in lieu upon termination only of annual leave accrued in the previous leave year. The decision therefore does not clarify whether it is possible in the UK to limit carry forward successive leave entitlements if an individual is off sick for several years.

The cases of Schulte and Neidel were referred to by the Court of Appeal (see paragraph 41 onwards) and these confirm that the WTD does permit a national limitation on carry over.

In Schulte it was held that a national law providing that carry over was limited to 15 months after the end of the reference period was not precluded by Article 7. In Neidel it was held that a carry over period of 9 months was not permissible under the WTD because it was shorter than the one-year reference period for taking annual leave. Amendments to the WTR to impose a limit is something currently being considered by the government in the Consultation on Modern Workplaces.

Whilst the case concerned a public sector employee, the Court of Appeal made it clear that its findings would apply equally to a private sector employer which lays to rest some substantial debate on this matter.

As outlined above, the Larner decision only relates to holiday entitlement under Regulation 13(1) ie 4 weeks basic entitlement. The Court of Appeal did not make findings on additional annual leave entitlement under Regulation 13(A). The Court however referred (paragraphs 49-58) to the recent decision in Neidel which held that the WTD did not preclude there being provisions in national law to limit carry forward of additional leave (in that case a 9 month limit) where a worker had not taken the leave because of sickness absence.

In the UK the WTR permit carry forward by ‘relevant agreement’ but only into the immediately following leave year.

Relevant case law:
Stringer and others v HMRC
HMRC v Stringer
Schultz-Hoff v Deutsche Rentenversicherung Bund [2009] IRLR 214
Pereda v Madrid Movilidad SA C-277/08
, [2009] IRLR 959
Kigass Aero Components v Brown [2002] IRLR 312
List Design Group v Douglas and Catley [2003] IRLR 14

CanadaLife v Gray and Farrar ( EAT unreported) (Word)
NHS Leeds v Larner
Georg Neidel v Stadt Frankfurt am Main
KHS AG v Schulte

5.4 Accrual of holiday during maternity, paternity and adoption leave

Contractual and statutory annual leave will accrue during maternity/adoption leave periods.

As with sickness absence, there is a problem where women on maternity or adoption leave may not return in time to take their leave during the current leave year. This is because Reg 13(9) prevents the carry-forward of the four week element of statutory leave entitlement.

In addition, contracts may seek to limit whether a worker can carry over contractual holiday. The ECJ in Merino Gomez v Continental Industries del Caucho SA [2004] IRLR 407 suggested that if a woman were to lose her entitlement to statutory annual leave as a result of going on maternity, or adoption, leave, this would amount to sex discrimination.

Individuals on paternity leave receive the same rights as those on maternity leave. Currently, there are few problems with carry forward due to the length of paternity leave. However, where a child is due to be born on or after 3 April 2011, a qualifying partner of the child's mother may be entitled to additional paternity leave of up to 26 weeks.

5.5 Accrual of holiday during other types of leave

While there is no decided case on the point, applying the same reasoning in relation to the accrual of holiday during sickness absences, it is clearly arguable that holiday will accrue during other types of leave, for example unpaid leave or disciplinary suspension, and the right to take the leave will exist when the worker returns.

Statutory holiday entitlement may also accrue during career breaks because the key question on determining if they are a worker is if they have 'entered into or works under' a contract.

There is no requirement to work during a career break but it could be argued that a contractual relationship continues during a career break. It will be a question of fact whether or not the individual remains under a contract and if they are then it will be difficult to argue that statutory leave entitlements do not accrue.

Relevant case law:
Stringer and others v HMRC
Curr v Marks & Spencer plc [2003] IRLR 74

6 Employment tribunal claims

A worker can present a complaint to the employment tribunal under Reg 30(a) that they have been refused the right to exercise their entitlement to annual leave under Reg 13 and/or 13A.

A worker can also bring a claim for non-payment of wages during annual leave in breach of Reg 14 and 16 to the employment tribunal under either Reg 30 or under s.23 ERA (as an unlawful deduction from wages).

Most individuals are likely to use the ERA as the limitation period is three months from the last of 'a series of deductions' whereas under Reg 30 the period expires three months from the date the leave begun, or would have begun.

It would seem a contradiction that an individual has longer to claim for non-payment than for not being allowed to take leave at all.

There is also doubt about whether a worker would be able to bring such a claim if they never actually applied to take leave (because they were unaware of their rights or were actively discouraged by workplace policy from applying). We have to await case law on these issues to clarify the position.

Relevant case law:
HMRC v Stringer

6.1 Remedy of non-payment claims

Non-payment claims (in breach of Regulations 14 and 16) will be remedied by simple calculation of the monies that are due for the annual leave period.

Reg 13 (denial of leave) claims are more uncertain in terms of remedy. Reg 30 states that the tribunal 'may make an award of compensation to be paid by the employer to the worker' and so it is whatever the tribunal decides is just and equitable in all the circumstances. This may include compensation for loss of amenity.

7 More information

7.1 Legal and other requirements

7.2 Further products and support

Practice Advice Line

The Law Society provides support for solicitors on a wide range of areas of practice. Practice Advice can be contacted on 0870 606 2522 from 09:00 to 17:00 on weekdays.

Other information and services

ACAS (the Advisory Conciliation and Arbitration Service)
Telephone Number: 08457 474747
Textphone: 08456061600

Business link provides information and advice to employers and individuals on legislation and on industrial relations practices and procedures.

7.3 Acknowledgements

The Law Society acknowledges the Employment Law Committee for their help with this practice note.

 
 
 

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