Frequently asked questions … holidays

This edition’s FAQ’s address some of the tricky issues that can arise when employees take paid annual leave.

Q1: Do employees dismissed for gross misconduct lose the right to receive payment for any accrued but untaken holiday?
Q2: Are employees who are absent due to long term sickness entitled to accrue all untaken holiday?
Q3: Do full time employees have the right to take more holiday if they regularly work additional hours?
Q4: How much is a worker entitled to be paid when they take a holiday?
Q5: How is a part time worker’s holiday entitlement calculated?
Q6: Do employees have the right to not work on a bank holiday?
Q7: Do we have to adjust the holiday entitlement for those members of staff who increase or decrease the number of hours they work during the holiday year?
Q8: Can we include holiday pay in the hourly rate of staff employed on a casual basis?

Q1: Do employees dismissed for gross misconduct lose the right to receive payment for any accrued but untaken holiday?

No. If you are entitled to dismiss a member of staff for gross misconduct (without notice), their employment will usually terminate when you communicate the decision to them. Whilst the employee is not entitled to work during their notice period or to receive a payment in lieu he/she will be entitled to receive all contractual benefits that have accrued up to the date of their dismissal (unless these are specifically excluded under the terms of their contract of employment).

Under the Working Time Regulations 1998 an employee is entitled to receive payment for any untaken holiday on termination. However, the wording of the employee's contract should be checked as it is relatively common for an employment contract to provide that employees dismissed for gross misconduct will only be entitled to payment for accrued but unused holiday based on their minimum holiday entitlement under the Working Time Regulations (which is 28 days for a full time worker) and not any additional contractual entitlement.

Q2: Are employees who are absent due to long term sickness entitled to accrue (and take or be paid for) all untaken holiday?

This will depend on how long the worker is actually ill and in particular, whether their illness prevents the worker from taking leave in the holiday year in which it accrues. These are the basic principles:

The Working Time Regulations 1998 (which set out a worker’s minimum holiday entitlements) state that a worker must take annual leave in the year in respect it is due. It cannot be replaced by a payment in lieu except on termination of employment. The basic principle (subject to the matters below), is that if holiday is not taken, it is lost unless it is carried over by agreement or under the contract.

Whilst on sickness leave, the right to accrue holiday only applies to the 20 days required by the European Directive, not to the additional 8 days provided under UK law unless an agreement says otherwise (such as the employee’s contract of employment).

If a sick worker cannot, or does not wish to take holiday during the current leave year (because of their illness), it can be carried over to the next leave year (even though this is at odds with the strict wording of the Regulations).

A worker does not however have to ask to take annual leave whilst sick to preserve their right to take it at a later date, or to carry it over to the next leave year.

Furthermore, you cannot ask a sick worker to demonstrate that they are physically unable to take annual leave whilst they are sick and must assume that if the worker does not ask to take holiday during sick leave it will accrue and, if necessary, be rolled over to the next leave year.

The right to accrue annual leave does not continue indefinitely and it seems from recent caselaw you can impose a “cut-off date” of up to 18 months from the end of the leave year in which the holiday accrued. Recent European and UK cases have held that restricting carry over to 18 or 15 months from the end of the relevant leave year is sufficient (but that 6 or 9 months is not).

Q3: Do full time employees have the right to take more holiday if they regularly work additional hours?

Not unless they have a contractual right to receive additional holiday under the terms of their employment. Under the Working Time Regulations 1998, full time employees are entitled to receive a minimum of 28 days holiday (5.6 weeks) per year and employers and not obliged (legally or morally) to offer more than this.

In practice, many employers do offer additional holiday but this is normally linked to service qualifications (to reward longer serving employees for example) rather than for working additional hours during the year. Time off in lieu of additional hours is sometimes given albeit the trend has been that this is very much in the minority now.

Q4: How much is a worker entitled to be paid when they take a holiday?

Workers should receive their “normal” salary when they take a holiday. A worker who works the same number of hours per day and is paid a fixed amount for working those hours is entitled to be paid at this rate.

Workers who do not have any fixed hours of working are entitled to pay based on an average of the pay they received (calculated over the previous 12 weeks) including payments for commission or overtime.

Workers who have regular hours of work who also work overtime (and are paid for these additional hours) are entitled to have overtime payments factored into their holiday pay (although there is legal uncertainly about whether purely voluntary overtime can be excluded). This can be calculated by reference to the previous 12 weeks, or you can set a more appropriate reference period.

For example, if your workers regularly work overtime for a 3 month period in the run up to Christmas, it might be more representative to apply a 52 week reference period to work out holiday pay, otherwise those employees taking paid holiday in the three months after Christmas will receive more holiday pay than those taking it during the summer holidays.

Q5: How is a part time worker’s holiday entitlement calculated?

Full time staff are entitled to a minimum of 28 days (5.6 weeks) holiday under the Working Time Regulations 1998. This is pro-rated for part time staff.
It is often more straightforward to convert the holiday entitlement of a comparable full time worker in to hours before applying the pro rata principle (particularly where the worker does not work the same number of hours each day).

Example: A part time worker works 21 hours per week, Monday to Wednesday.

Full time worker’s hours of work per week: 35 hours per week (7 hours per day)

Full time worker’s annual Holiday entitlement: 196 hours (28 days)

Part time employee’s pro rata annual holiday entitlement: 0.6% of equivalent full time entitlement

Calculation: 0.6 x 196 = 117.6 hours (rounded up to 118 hours) or 16.8 days (rounded up to 17 days) *
*it is only strictly necessary to round up holiday to the nearest day or half day where the employee is in the first year of employment. Unless the contract of employment stipulates otherwise, employers can require staff to only receive the precise hourly holiday they are entitled to after this period.

What about bank holidays?

Employees are not entitled to take bank holidays off unless their contracts of employment provide for this. If we assume that the worker above is required to take off bank holidays that fall on her normal days of work, these will be deducted from the total of her holiday entitlement. In practice, this may mean that part-time staff who normally work on Monday (when most bank holidays fall) have less choice about when they take their leave.

Is the position different for annualised staff?

No. Staff who work annualised hours are entitled to have the same pro-rata entitlement to holiday as a full time member of staff working a “normal” pattern. However, these staff will usually have to take their holiday at specific times of the year in line with their contract terms. Depending on their work pattern, some of this may be deemed to be unpaid leave.

Q6: Do employees have the right to not work on a bank holiday and are they entitled to extra pay if they do work on these days?

Employees are not automatically entitled to take bank holidays off, or to be paid extra for working on a bank holiday unless their contracts of employment provide for this.

Q7: Do we have to adjust the holiday entitlement for those members of staff who increase or decrease the number of hours they work during the holiday year?

Yes. If you have workers who change their hours of work, you must look at each period separately to work out how much holiday they are entitled to receive.

Q8: Can we include holiday pay in the hourly rate of staff employed on a casual basis?

This practice is known as “rolling up” holiday pay so that staff receive a top up to their normal hourly or daily rate of pay to reflect the amount of holiday they have accrued during that period. Although it is straightforward to apply, the practice is no longer lawful because receiving payment for holiday in advance reduces the likelihood that a worker will save this amount in order to take a holiday (the Working Time Regulations being a health and safety initiative designed to ensure individuals are not discouraged from taking leave).

However, it is lawful for employers to include an enhancement in a worker’s pay to reflect the amount of holiday they accrue on an hourly or daily basis provided this is only paid to the worker when he/she takes paid holiday.

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