Rolled-up Holiday Pay and the European Working Time Directive
It has sometimes been the practice of employers, particularly those employing temporary workers, to pay their employees on the basis that they receive as part of their usual wage an element for holiday pay. This would mean that when a holiday is actually taken, the worker would not receive any holiday pay as he or she had effectively received it in advance as part of previous wages received. This practice is commonly known as "rolled-up holiday pay". The practical effect of rolled-up holiday pay may be that some workers will feel that it is not worth taking holiday leave since they would not receive their usual wage during that time.
The European Working Time Directive provides that every employee must receive at least 20 days paid holiday leave. This has been made effective in UK law by the Working Time Regulations 1998 (which now provide that all full time workers are entitled to a minimum of 24 days paid holiday per year, rising to 28 days by 2010).
There had conflicting court authority in Scotland and England on the question whether the practice of rolled-up holiday pay was lawful in terms of the Directive. The issue was referred by the Court of Appeal in England to the European Court of Justice (ECJ) for a preliminary ruling in Robinson-Steele v R D Retail Services Ltd. The ruling has clarified the law as it currently stands. It ruled as follows:
- The European Working Time Directive is intended to ensure that employees have a minimum period of holiday leave.
- This period of rest must be renumerated as normal.
- Employers should not be able to contract out of these basic requirements.
- Rolled-up holiday pay already paid can be set off against payment for holiday leave taken in respect of that holiday pay but in future, measures must be taken to ensure that these practices do not continue (ie the judgement will not have retrospective effect but arrangements must be changed to comply in future).
Accordingly employers must ensure that any contractual arrangements concerning rolled-up holiday pay are discontinued. Holiday pay should be paid at the time that the holidays are taken.
The information contained in this sheet is for general information only.
For specific advice, please contact Graham Reid at our Edinburgh office on telephone number 0131 220 3000.