tate that a worker’s existing rate of pay includes holiday pay. The employer must identify what sum is paid in respect of holiday pay. So employers cannot get round the requirement to pay workers for their holiday by stating that the existing rate of pay includes holiday pay. Since this provides no additional benefit to a worker it is clearly in breach of the DirectiIt is now well known that the Working Time Regulations 1998 give workers in the UK the right to four weeks paid holiday each year. The European Court of Justice (ECJ) has just given judgment in a case concerning rolled-up holiday pay. This is a system where workers are paid a set rate that includes an amount for holiday pay, often expressed as a percentage of the overall rate of pay. When the worker goes on holiday, they are not paid anything for the days they are off work.

The system has been criticised for failing to encourage workers to take their holiday, as they don’t get paid during the period that they are absent. It is said that this is contrary to the underlying purpose of the Working Time Directive (and the Working Time Regulations which derive from it) which is to protect the health and safety of workers by allowing them to take suitable periods of rest and annual leave. The ECJ stressed that the right of every worker to paid annual leave is a particularly important principle of community social law. The court confirmed that, although the Directive does not specify when holiday pay should be paid, the purpose of the Directive is to ensure the worker, does not lose out as regards remuneration, because they have taken holiday. This is reinforced by the provisions in the Directive which prohibit payments to be made in lieu of holiday, other than at the end of employment. With this in mind, the ECJ decided:

• It is unlawful to state that a worker’s existing rate of pay includes holiday pay. The employer must identify what sum is paid in respect of holiday pay. So employers cannot get round the requirement to pay workers for their holiday by stating that the existing rate of pay includes holiday pay. Since this provides no additional benefit to a worker it is clearly in breach of the Directiv
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  rall rate of pay. When the worker goes on holiday, they are not paid anything for the days they are off work.

  The system has been criticised for failing to encourage workers to take their holiday, as they don’t get paid during the period that they are absent. It is said that this is contrary to the underlying purpose of the Working Time Directive (and the Working Time Regulations which derive from it) which is to protect the health and safety of workers by allowing them to take suitable periods of rest and annual leave. The ECJ stressed that the right of every worker to paid annual leave is a particularly important principle of community social law. The court confirmed that, although the Directive does not specify when holiday pay should be paid, the purpose of the Directive is to ensure the worker, does not lose out as regards remuneration, because they have taken holiday. This is reinforced by the provisions in the Directive which prohibit payments to be made in lieu of holiday, other than at the end of employment. With this in mind, the ECJ decided:

  • It is unlawful to state that a worker’s existing rate of pay includes holiday pay. The employer must identify what sum is paid in respect of holiday pay. So employers cannot get round the requirement to pay workers for their holiday by stating that the existing rate of pay includes holiday pay. Since this provides no additional benefit to a worker it is clearly in breach of the Directi
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    ng Time Regulations which derive from it) which is to protect the health and safety of workers by allowing them to take suitable periods of rest and annual leave. The ECJ stressed that the right of every worker to paid annual leave is a particularly important principle of community social law. The court confirmed that, although the Directive does not specify when holiday pay should be paid, the purpose of the Directive is to ensure the worker, does not lose out as regards remuneration, because they have taken holiday. This is reinforced by the provisions in the Directive which prohibit payments to be made in lieu of holiday, other than at the end of employment. With this in mind, the ECJ decided:
    • It is unlawful to state that a worker’s existing rate of pay includes holiday pay. The employer must identify what sum is paid in respect of holiday pay. So employers cannot get round the requirement to pay workers for their holiday by stating that the existing rate of pay includes holiday pay. Since this provides no additional benefit to a worker it is clearly in breach of the Directi
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      day pay should be paid, the purpose of the Directive is to ensure the worker, does not lose out as regards remuneration, because they have taken holiday. This is reinforced by the provisions in the Directive which prohibit payments to be made in lieu of holiday, other than at the end of employment. With this in mind, the ECJ decided:
      • It is unlawful to state that a worker’s existing rate of pay includes holiday pay. The employer must identify what sum is paid in respect of holiday pay. So employers cannot get round the requirement to pay workers for their holiday by stating that the existing rate of pay includes holiday pay. Since this provides no additional benefit to a worker it is clearly in breach of the Directi
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        tate that a worker’s existing rate of pay includes holiday pay. The employer must identify what sum is paid in respect of holiday pay. So employers cannot get round the requirement to pay workers for their holiday by stating that the existing rate of pay includes holiday pay. Since this provides no additional benefit to a worker it is clearly in breach of the Directive and the Regulations.
      • Employers cannot make staggered payments over the year in respect of holiday pay, but must pay the worker during the actual period of the leave.

      It would seem from this that the practice of rolling up holiday pay must end. However, rather confusingly, the ECJ went on to state that genuine rolled up holiday payments made under a system that is transparent and comprehensive can be set off against a worker’s entitlement to payment when he or she actually takes leave. The ECJ did not specify what they meant by ‘transparent and comprehensive’ but this is likely to include ensuring that the rate of holiday pay is clearly identified in the contract and on the payslip and that it is a true addition to contractual pay.

      However, it is likely that the days of any form of rolled-up holiday pay are numbered as the UK Government is obliged to ensure practices contrary to EU law are not continued. We anticipate that the Government will make changes to the Working Time Regulations or the Guidance to outlaw the practice of rolled-up holiday pay.

      If you currently operate a rolled-up holiday pay system, you will need to review how you operate the system and should consider transferring to a system of paying workers when they actually take a period of leave. Any change of this nature will need each of the worker’s consent and you may be required to consult with the workers’ representatives. Please contact one of the e