Is it legal to ‘roll up’ holiday pay for temporary workers?
What is the best way to distribute holiday pay to temporary workers? Many of our clients are confused on this issue, believing that paying holiday pay on a “rolled up” basis (that is, by including a holiday pay element in the workers hourly or daily rate) is illegal. Thus they have begun paying it on an accrued basis (where the holiday pay is put aside and then paid to the worker when they are actually on leave). But what is the correct position?
In respect of rolled up holiday pay, the highest legal authority is a European case from 2006. It was decided that while paying holiday pay on a rolled up basis was a technical breach of the Working Time Regulations 1998, so long as the worker had been told clearly, comprehensively and transparently, how holiday pay would be made, any amounts of holiday pay due to the worker could be set off against amounts that the worker had already received. Since these amounts would be the same, effectively the worker had incurred no loss, and therefore there was no justifiable claim. This principle has been followed subsequently in a number of UK Employment Tribunal cases.
So, accrued or rolled up? In its decision, the European Court did say that the UK should take steps to prevent the payment of holiday pay on a rolled up basis, due to the fact that the rationale behind the Working Time Regulations was to encourage workers to take time off, which they may not do if they had reason to fear that they would not be paid for it. However, no new legislation has been introduced. Just to confuse matters the Department for Business Innovation and Skills (BIS) changed the guidance on its website and now states that rolled up holiday pay is unlawful. This could indicate that change in the regulations is on its way, although the BIS guidance change was now some time ago.
Nevertheless, a recruitment business for which Lawspeed was acting successfully fought off a tribunal claim for unpaid holiday pay. Our client had made payments on a rolled up basis. These payments were allowed, in line with our advice, because of the way in which they had been made.
The conclusion? Unless and until there is a change in the law, paying holiday pay on a rolled up basis, provided it is done correctly, is still a viable and convenient option for agencies. Current BIS guidance in this area does not reflect the full picture.
For more information, please contact Lawspeed on 01273 236 236