European Court of Justice rules against payment in lieu of holiday

The practice of paying rolled-up holiday pay used by many employers in the UK will have to stop now that the European Court of Justice has ruled that it contravenes the Working Time Directive.

Rolled-up holiday pay refers to the practice of an employer agreeing with workers that their pay for annual leave be included in their hourly remuneration.

The European Court of Justice was ruling in a case brought by a group of British shift workers demanding the right to payment during their holidays instead of notional extra hourly pay instead.

Philip Titchmarsh, employment senior associate at Pinsent Masons, the law firm acting for the employer in this case, said: “The European Court of Justice has decided that payment for annual leave through rolled-up holiday pay is contrary to the Working Time Directive.

“The good news for employers who have paid workers for holiday through a system of rolled-up holiday pay, is that payments made transparently and comprehensibly may be set off against the payment due for specific leave.

“In practical terms, it would seem that the practice of paying rolled-up holiday pay will have to stop because it can lead to workers not taking their four weeks annual leave entitlement under the Working Time Regulations.” 

The Recruitment and Employment Confederation, the body that represents the UK recruitment industry, said the ruling will harm temporary workers instead of help them.

Anne Fairweather, external relations manager, said. “Rolled up holiday pay has meant that temps have been able to plan their holidays while working for a number of clients. Today’s ruling will have an effect on the way in which agencies manage their temps.”

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