ROLLED-UP HOLIDAY PAY

Rolled-up holiday pay occurs where an employer pays an additional amount of salary/wages as part of an individual’s normal remuneration in respect of holiday pay rather than making separate payments at the time holiday is taken. The practice is most often applicable to hourly paid or shift workers.

There has been considerable debate as to whether rolled-up holiday pay is allowed under the Working Time Regulations 1998 and, if so, in what circumstances. In a new group of cases before the Employment Appeals Tribunal (under the lead name of Smith v A J Morrisroes & Sons [2005] IRLR 72), the President of the EAT, Mr Justice Burton, has followed previous decisions allowing rolled-up holiday pay, but has placed emphasised the fact that an employer must show that the holiday pay is an additional amount.

In order to avoid a breach of the Working Time Regulations, the Mr Justice Burton decided there must be mutual agreement for genuine payment for holidays, "representing a true addition to the contractual rate of pay for time worked". In order to avoid falling foul of the legislation, the recommended ways of evidencing this agreement are for:

(a) the provision for rolled-up holiday pay to be clearly incorporated into the contract of employment;

(b) the percentage or amount allocated to holiday pay (or particulars sufficient to enable it to be calculated) to be identified in the contract, and preferably also in the payslip; and

(c) records to be kept of holidays taken (or of absences from work when holidays can be taken) and for reasonably practicable steps to be taken to ensure that workers take their holiday entitlement before the end of the relevant holiday year."

The question of whether this practice is compatible with the European Working Time Directive was referred to the European Court of Justice in the case of Marshalls Clay Products Ltd v Caulfield but this has been pending since June 2004. It therefore seems that the debate will continue for some time to come.

22 February 2005