How complicated can annual leave and holiday pay be?

Very, if you want to treat your employees fairly and legally.

Time was, your employees’ holidays were the easy part and when they were away you didn’t have to worry about them. Not any longer. And let’s leave to one side the current turmoil as to whether someone is or is not legally employed.

Yes, employees can be sick on holiday and claim another one.

Just before they are due to go or once they are actually on their annual leave, employees have the right to change to sick leave. They are then entitled to take the missed annual leave later in the year or to carry it over (a maximum of 20 days) to the next year. Employers can, however, insist that their normal policies and procedures of reporting sickness (and getting a Fit Note) are followed, otherwise such sickness claims can be made subject to your disciplinary procedure. Employers can also add a specific requirement that a Fit Note is needed when sick on annual leave. However, for fewer than 7 days the company would have to pay for this and that might not be such a good idea for a sick employee in certain parts of the world.

Once valid sickness on annual leave is agreed, employees must be paid for this time off in accordance with your company and statutory sick pay policy. You can exclude your company sick pay scheme for holiday sickness if you put this in your policies, but this will not be appreciated by your employees.

Advice?

Treat sickness during annual leave in exactly the same way as you would normally treat it and make sure your sickness policies and procedures are up to scratch.

Yes, employees are entitled to certain types of overtime, allowances and commission while they are on holiday.

There has been a lot of European and UK case law regarding this over the past few years.  It almost always comes down in favour of the employee. The Eurocratic rationale is that employees must not be discouraged in any way from taking their annual leave.

Anything that can be considered ‘normal remuneration’ must now be taken into account when giving holiday pay. Both guaranteed and non-guaranteed overtime must be considered if they are ‘intrinsically linked’ to the employee’s duties under their contract of employment and ‘sufficiently regular’.

Other legal cases have established that regular commission payments and allowances, again ‘intrinsically linked’ to a job, should also be included in holiday pay calculations, even though no legal guidance has been given as to how to calculate them.

But all of this only applies to the first 20 days of annual leave entitlement that derives from the EU Working Time Directive and not the additional 8 days from Regulation 13A of the UK Working Time Regulations. Strictly speaking, you should decide which 20 days get the extra holiday pay and which 8 days do not. Try working that one out, let alone explaining it to your people! The Government, hopefully tongue-in-cheek, advises that “you may wish to consider explaining this clearly and consistently to the worker”.

Advice?

Best to err on the generous side. Pay up for everything for all 28 days. Then you don’t have to worry about ending up in a tribunal – or banging your head on your desk.

What about employees who do not work fixed or regular hours?

This can get extremely complicated. Government regulations say that to calculate holiday pay for such employees you must consider the overall average weekly remuneration for the previous 12 weeks when work actually took place. But at what point do you do this? What happens if employees take more leave than they have accrued or do not want to take their holidays precisely every 12 weeks? Hopefully you are a whizz with spreadsheets, because you will need to keep track of all under/over-payments. Note also that 12-week periods do not fit nicely into months, so if your employees are paid monthly you have to convert that into weeks and then back again.

The easy solution to this issue would be to add a constant additional amount to every payroll to reflect accrued holiday. Many companies do this but Government guidance states that this “rolled-up” holiday pay is not permitted. However, the European Court of Justice has said that genuine additions to pay for holidays, which are separated on a payslip, can be set off against an employee’s claim. But the CIPD says this contradicts other ECJ rulings!

To make matters more interesting the EU wants employers to make sure that employees actually take their annual leave and are paid for it, but how can you know when someone working irregular hours is on holiday?

From April 2020 the Government will increase the 12-week reference period for calculations to 52 weeks in an attempt to make holiday pay for irregular hours fairer. The implications of this are that at least once a year you will be able to sort it all out correctly. But you will still need to keep a rough and ready calculation to make sure an employee is receiving more or less what they should do throughout the year.

Not very helpfully, on this area of holiday pay even the Government’s own official guidance states that it “does not and cannot provide definitive answers to individual queries, and in some places takes views on matters which are uncertain. It is not intended to be relied upon in any specific context or as a substitute for seeking advice (legal or otherwise)”!

 Advice?

The only way to make absolutely certain that employees on irregular hours receive the correct amount of holiday pay is currently to do a calculation once every 12 weeks when work has taken place (which of course is not every 3 months) and keep a running total. We also advise never to let such employees take more annual leave than they have accrued or you will get into an impossibly complicated mess.

One last bit of help from the powers that be.

All the Government websites/documents continually refer the reader to ACAS for more help.

The ACAS website says “Gov.uk has more detailed information on holidays and holiday pay”.

Time for a holiday.