The provisions that are contained within the Working Time Regulations 1998 (The Regulations) with regards to holiday entitlement taken with recent case law has seen an, understandable, increase in confusion with regards to what employees are legally entitled to.
In this article, we are going to eliminate the confusion and tell you precisely what the current laws are regarding holiday pay. However, we encourage you to double check everything below, with the UK governments official material, before making any decisions.
The Right To Holidays
The Regulations give employees the right to a minimum of 5.6 weeks of paid leave per year up to a maximum of 28 days. This entitlement also includes public and bank holidays. Of course, companies can give their employees more holidays than what is the minimum by law if they want to.
It is crucial to note that employees have the right to claim holidays from their first day of employment.
With regards to holiday pay, payment for holidays should be made at the rate of a “week’s pay” for each week of holiday taken under the Regulations. Where the employee has normal working hours (i.e. hours and payment that does not change from one week to the next) then payment for holidays should be the same amount as employee’s normal pay and calculated on the basis of the employee’s standard hours of work.
Usually, overtime is not counted when calculating the holiday pay for such employees, unless it’s guaranteed by the company and is compulsory under the employee’s contract. However, it’s worth noting that in the recent case of Neal v Freightliner, it was decided that overtime payment should be included for at least the four weeks leave as set by the Working Time Directive. Because this is only a tribunal decision, it’s not binding on other Tribunals but it is still worth bearing in mind as it indicates there may be changes in the law regarding this in the future.
For employees who hold normal hours but have pay that varies from one week to the next, then a week’s wage is calculated by taking the average compensation over the previous 12 working weeks. Much in the same way, for those employees who do not hold normal working hours, a week’s wages are calculated by taking the average payment over the previous 12 working week period.
It’s important to note that when you are calculating the 12-week average, you must take away any weeks where the worker was not paid and thus need to consider earlier where the employee did receive pay to bring the total to 12 weeks. If there are no standard hours of work or the rate of remuneration varies, holiday pay is calculated on the basis of the average pay received by the worker in the previous 12 weeks, taking away any weeks where no wages were payable.
If, as an employer, you decide to offer more days than the minimum by law, then you are free to make contractual provisions in an agreement that is relevant with regards to holiday pay for holiday entitlement more than the base of of 5.6 weeks.