Data file – holiday pay

continuing series of articles which give the basics on key areas of employment

The hard facts

Entitlement to paid annual leave arises under Regulation 13 of the Working
Time Regulations 1998, which entitles workers to four weeks’ paid holiday in
each leave year, with a pro rata equivalent for part-time workers. A ‘leave
year’ for these purposes will begin:

– On the date the worker began work for the current employer, or

– 1 October, or

– On a date set by the employer

As a result of a ruling by the European Court of Justice, the 13-week
qualifying period for annual leave was removed in 2001 and replaced with an
accrual system that the employer may use during the first year of employment.
Under the accrual system, leave is built up monthly in advance at the rate of
one-twelfth of annual entitlement. After the first year of employment, there is
no statutory provision for leave to accrue pro rata.

Payment on termination

At the end of a period of employment, a worker is entitled to a payment in
lieu for any leave which is outstanding, calculated on a pro rata basis from
the first day of the leave year (or employment, if later) to the last day of

Regulation 14(4) entitles an employer and worker to draw up a ‘relevant
agreement’ – which may be included in the contract of employment – providing
that a worker will compensate the employer if leave already taken exceeds the
worker’s pro rata entitlement when employment ends. If there is no ‘relevant
agreement’ in place, any deduction made from the worker’s final payment for
excess holiday will be an unauthorised deduction in contravention of section 13
Employment Rights Act 1996. This was recently confirmed by the Employment
Appeal Tribunal in Hill v Howard Chappel, EAT/1250/01.

Calculation and payment

Regulation 16 determines how paid leave should be calculated, by reference
to the definition of a ‘week’s pay’.

As a result of difficulties faced by employers calculating a week’s pay,
many employers seek to consolidate holiday pay into a ‘rolled up’ hourly or
weekly rate. However, the legality of this method of payment has been the
subject of conflicting decisions from the EAT. Most recently, the EAT has
declared that the payment of a holiday allowance by means of a weekly allowance
is unlawful and that holiday pay should be paid as and when holiday is taken:
MPB Structure Ltd v Munro, EAT/1257/01.

However, this conflicts with an earlier decision of the EAT in Gridquest
(t/a Select Employment) v Blackburn, 2002, IRLR 168, which is due to be heard
by the Court of Appeal in July.

Accrual during absence

Entitlement to paid holiday will continue to accrue during periods of
absence, such as long-term sickness and ordinary maternity leave.

This was confirmed by the EAT earlier this year in the joint appeals of
Kigass Aero Components Ltd v Brown; Bold Transmission Parts Ltd v Taree;
Macredie v Thrapston Garage, 2002, IRLR 312. The EAT upheld the right of
workers on sick leave to claim four weeks’ paid holiday, even if absent
throughout the leave year in question, provided notice of intention to take
holiday had been given.

Reading matter

– Working Time Regulations and Guidance can be found at:

– The DTI guidance on entitlement to annual leave can be found at:

– Acas guidance on Holidays and Holiday Pay can be found at:

Further information

The Employers Organisation for Local Government

Broadcasting Entertainment Cinematograph and Theatre Union

Confederation of British Industry (CBI)

The Trades Union Congress

Chartered Institute of Personnel and Development

Department of Trade and Industry

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