Overview

The minimum amount of annual leave which an employer must provide to a full-time worker is currently 28 days a year (or 5.6 weeks).

  • Bank holidays can still be counted towards the entitlement.
  • The rules extend to employees and all workers covered by the Working Time Regulations 1998, including agency workers.
  • The rules cover England, Wales and Scotland, and similar provisions apply in Northern Ireland.
  • There is a limited ability to carry leave over the four-week ‘European minimum’ from one holiday year to the next, subject to agreement between employer and worker.

COVID-19: The government announced a temporary and immediate relaxation of the rules on carrying over untaken holiday on 27 March 2020 in response to the COVID-19 emergency. The Working Time (Coronavirus)(Amendment) Regulations 2020 allow workers to carry over leave they have been unable to take due to the Coronavirus outbreak into the next two leave years.

Acas guidance advises that reasons for being unable to take leave could include:

  • self-isolating or being too ill to take leave
  • being temporarily laid off or furloughed
  • having to work through holidays.

The relaxation of the rules only applies to the four weeks’ statutory leave under EU rules. The UK’s extra 1.6 weeks’ leave can still only be carried over into the next leave year, and this has to be by agreement between organisation and worker.

For more information on dealing with the COVID-19 crisis, go to our Coronavirus FAQs.

A full time worker is entitled to 28 days a year (or 5.6 weeks). Whilst this seems straightforward, there are many areas of holiday leave and pay that present specific issues for employers. Calculating holidays and pay for casual or part time workers, employees on long-term sick leave or on maternity or parental leave can present complexities. 

Two key points are:

  • Employers should ensure that holiday pay takes commission, overtime, bonuses and other allowances into account. 
  • Bank or public holidays including Christmas and Easter can be counted towards the annual holiday entitlement.

The Working Time Regulations 1998 (SI 1998/1833) (WTR) cover England, Wales and Scotland, and similar provisions apply in Northern Ireland. Scotland draws a distinction between bank holidays and public (or local) holidays because the latter are determined by local authorities, based on local tradition (not statute) and after consultation with local business interests. Dates for bank holidays are the same across the whole of Scotland.

Bank holidays or public holidays are historically a rather strange legal concept, as they can be specified by royal proclamation as well as by legislation. The main Act governing bank holidays is the Banking and Financial Dealings Act 1971, though other relevant Acts include the Christmas Day (Trading) Act 2004 and the Deduction from Wages (Limitation) Regulations 2014.

Some basic working time rights were originally collectively agreed with the EU, and holiday rights and pay have been identified as one of the areas which could change after Brexit. 

Potential issues, including accrual of holiday whilst off sick, are dealt with under the headings below and in Future developments (see below). 

The working time rules about leave and pay extend to both employees and those without employment status who are classed as workers. This includes agency workers and part-time workers.

Those who might be classed as self-employed are also governed by the regulations. For example, couriers and drivers for companies such as Uber and Addison Lee, designated by the companies they work for as self-employed, have mostly been found to be workers and entitled to paid holiday and other rights under the WTR (see our Employment status Q&As for more details on worker status).

Under the WTR, workers are protected from working excessively long hours or working without breaks or holidays. The main holiday right for full time adult workers is to a minimum of 28 days (or 5.6 weeks) paid annual leave. Holiday entitlement continues to accrue through maternity and paternity leave periods.

The regulations also provide for a maximum average working week of not more than 48 hours, 20-minute rest breaks and daily and weekly rest periods.

For information on rest breaks and working time generally, see our Working time regulations Q&As.

Part-time workers are entitled to holiday proportionate to the time they normally work and which equates to 5.6 times their usual working week. In other words, they receive the same level of holiday pro rata.

For example, the entitlement for someone working:

  • two days a week is 11.2 days' leave a year
  • three days a week is 16.8 days' leave a year
  • four days a week is 22.4 days’ leave a year.

The law does not specify how employers should deal with half days. Many employers round up, but some employers work out fractions of a day off.

Part-time workers should be treated no less favourably than an equivalent full-time worker (for more information, see our Part-time workers Q&As).

If employers breach of the WTR, for example, by providing less than the statutory minimum holiday, there are number of sanctions including:

  • Compensation and a declaration the workers’ rights having been infringed in an employment tribunal.
  • Extra compensation for workers who are dismissed, selected for redundancy, or suffer a detriment, for pursuing their working time rights.
  • Enforcement by Health & Safety Executive (HSE) leading to improvement notices, unlimited fines and ultimately imprisonment.
  • Civil claims for breach of contract or negligence if, for example, anyone is injured because an employer fails to allow sufficient time off which amounts to failure to take care of the employee’s health and safety.

Employers must not provide less than the statutory minimum annual leave and pay. However, they may offer more than these minimum rights as part of the employee’s contract.

For example, for someone working five days a week could be given 28 days’ paid annual leave could be given in addition to paid leave on bank holidays (see Bank holiday pay below).

Calculating holiday for new recruits

In many cases, employers theoretically allow annual holiday entitlement to accrue from day one of employment. Some employers operate a policy that new workers must accrue holiday days before they can take them off. This means those workers must wait until enough months have gone by to build up some holiday entitlement. In those cases, holiday entitlement would accrue at one-twelfth of the statutory annual entitlement (rounded up to the nearest half day). The holiday amount then increases on the first day of each month for that first year.

When calculating holiday during the employee’s first year of employment, all fractions are rounded up to the nearest half day, except on termination.

Calculating holiday during employment

For later years, most employers operate a standard holiday year. If there is no such arrangement, the leave year begins on the anniversary of the start of employment and each subsequent anniversary. Fractions of a day’s holiday (apart from during the first year of employment) do not have to be rounded up but cannot be rounded down.

Calculating holiday for leavers

When a worker leaves a job, they will be paid for any untaken holiday they were entitled to on a pro rata basis. If a worker has taken more holiday than has accrued by the time they leave, then there may be a deduction from pay in respect of the excess holiday taken, but only if there has been agreement to this.

Annual statutory holiday should not be replaced by a payment in lieu – except when employment terminates.

Notice arrangements

Many contracts of employment specify notice arrangements for annual leave. Employers can also fix some or all of the dates of annual holidays but must give written notice to each worker of this.

If there is not an agreement, the WTR state that workers should give written notice of their intention to take holiday. Although some employers do not enforce this, the notice required should be at least twice the length of the holiday being taken. For example, if a worker wishes to take two weeks’ holiday, they must give the employer at least four weeks' notice.

Employers can refuse holiday requests in writing provided the notice is at least equivalent to the period of leave requested. So, an employer would have to give at least two weeks’ notice if a fortnight’s holiday was being requested.

Employers do not have to say why they are refusing holiday requests, although explaining that other members of the team have already applied to take the same period off, or that the worker's services are required during a busy period, would be sensible.

Managers who randomly reject holiday requests may breach the duty of mutual trust and confidence if they are not acting in good faith and on reasonable grounds. The worker must be permitted to take the leave at another time within the leave year.

Holiday pay will be at the worker’s normal rate of pay, calculated on the basis of the worker’s normal hours of work. This leads to many complexities. Employers should start by calculating holiday pay based on an average weekly wage. This includes many of the extra payments regularly made to employees: for example, any extra payments for Sunday working should be included, not just normal hours.

Workers are all entitled to a week’s normal holiday pay in respect of each week of their statutory 5.6 weeks’ (or 28 days’) holiday entitlement. A week’s pay is either:

  • The normal rate of weekly pay, if the worker’s hours or pay do not vary.
  • The average remuneration over the previous 52 weeks (or however many complete weeks the individual has worked if less than a year), if their hours or remuneration varies.

(Note that the averaging period for calculating holiday was increased from 12 to 52 weeks on 6 April 2020 under the Good work plan.)

However, what is normal weekly pay and average remuneration? The position is clear if there is just a basic salary to take into account, but there has been significant uncertainty as to whether overtime and commission should always be taken into account when calculating a week’s holiday pay.

Calculating holiday pay

When calculating holiday pay, it is well established that the following elements should be included:

  • Contractual overtime – the Employment Rights Act 1996 says that pay for a working week includes basic pay and overtime if this is contractual.
  • Non- contractual overtime – case law has established that other types of overtime should be included (see Case law below).
  • Contractual bonuses – if an employee's hours and pay vary, perhaps because of bonuses, or commission, or shift work premiums, then the average hourly rate over the preceding 52 weeks (12 weeks prior to 6 April 2020) takes into account the extra payments.

When calculating employee holiday pay it is established that the following elements should probably be excluded:

  • Discretionary bonuses – bonuses that are definitely not contractual are excluded.
  • Salary sacrifice schemes – any salary that is sacrificed through such a scheme (for example, for childcare vouchers) may be excluded.
  • Benefits such as pensions, cars, or health cover – a week’s pay will generally not include these.

Overtime

Case law originally distinguished between compulsory overtime, which did count towards holiday pay, and voluntary overtime, which historically did not. However, later cases have now concluded that voluntary overtime can constitute part of normal working hours and should, therefore, be included when calculating holiday pay.

All overtime, both contractual and non-contractual, should now therefore be included when calculating holiday pay. The overtime must also be sufficiently regular and settled to amount to normal remuneration. This includes overtime which is:

  • Compulsory – overtime that an employer can require the employee to do in addition to normal working hours.
  • Guaranteed – overtime that an employee is contractually entitled to receive and is required to do.
  • Regular but non-guaranteed – overtime the employee does regularly, but the employer is not obliged to provide.
  • Voluntary overtime – overtime that the employer does not have to offer and which the employee does not have to do. (The Court of Appeal, in Flowers v East of England Ambulance Trust 2019, decided that voluntary overtime which is regularly worked should be included in normal pay for holiday pay calculation purposes.)

Employers should note that holiday pay should reflect payments that workers receive for overtime for the four weeks' annual leave which originally came from the EU Working Time Directive but not the extra eight days’ holiday under the UK’s WTR.

Employers can, therefore, pay a higher rate of holiday pay (to include average overtime, commissions etc) for the first 20 days’ holiday with the remaining eight days being paid at a level not including the extra payments. Although the employer can, of course, choose to pay the full 28 days at the higher level voluntarily.

Employers may wish to reduce non-contractual overtime and commission payments where possible, or factor in a contingency for future liability under holiday pay claims.

Voluntary overtime is included, as overtime does not have to be contractually required in order for it to be included within the concept of normal remuneration for the purposes of calculating holiday pay (see Dudley MBC v Willetts 2016).

The terms ‘bank holiday’ and ‘public holiday’ are often used interchangeably. In England and Wales, a bank holiday is usually a public holiday as well because the majority of people have the day off. Bank holidays are days when banks are entitled to close, either by royal proclamation or under the Banking and Financial Dealings Act 1971.

England and Wales

There are six annual bank holidays and two public holidays in England and Wales:

  • New Year’s Day
  • Good Friday (public holiday)
  • Easter Monday
  • First Monday in May
  • Last Monday in May
  • Last Monday in August
  • Christmas Day (public holiday)
  • Boxing Day.

Scotland

In Scotland, the bank holidays are the same as in England and Wales, except that:

  • First Monday in August is a bank holiday (instead of the last Monday).
  • 2 January is also a bank holiday, to accommodate recovery from the Hogmanay celebrations on 1 January.
  • Easter Monday is not officially a bank holiday but most banks in Scotland are closed on that day to co-ordinate with England and Wales.
  • Extra public holidays will vary as determined by local authorities.

Northern Ireland

Northern Ireland has the same bank holidays as England and Wales, except that there are two extra days:

  • St Patrick’s Day
  • Battle of the Boyne (Orangemen’s Day).

Actual dates of the holidays

In 2020, the first May bank holiday will move from Monday 4 May to Friday 8 May to mark the 75th anniversary of VE Day.

Government schedules for England, Wales and Scotland are available at UK Bank holidays.

Dates for Bank holidays in Northern Ireland are available at the NI government website.

There is no automatic right to paid leave on bank or public holidays. Time off or extra pay for working on bank holidays depends on contractual terms.

Time off for bank holidays can either be counted against a worker’s annual holiday entitlement or can be provided in addition to it, depending on what the contract states. Employers can, therefore, include the eight UK bank holidays within full-time workers’ right to 28 days’ holiday. Employers can also insist that workers are available to work on bank holidays or use up their paid holiday on bank holidays. In practice, many workers are entitled to pay on bank and public holidays as a result of implied or express contractual terms, for example, based on previous practice.

Under the Employment Rights Act 1996, employers should provide new employees (and, from 6 April 2020, workers) with a written statement of terms and conditions on day one of employment (see our Terms and conditions of employment Q&As). Employers should specify holiday entitlement – including bank holidays and the rate of pay for working on a bank holiday – in the written terms and conditions. Employers should also word contracts carefully to ensure their intentions are implemented by specifying whether bank holidays are included.

Extra pay on bank holidays

Some employers do agree to give extra pay, for example, time and a half, when an employee works on a bank holiday. However, there is no right for employees to be paid a higher rate than normal for working on a bank holiday unless this is provided for in the written statement or contract of employment.

If employees have historically been paid an enhanced rate for working bank holidays, it is likely that a contractual entitlement can be implied. And if employees regularly receive shift premiums and overtime payments, they may be entitled to more than basic pay on bank holidays and other holidays.

Workers who build up too much annual holiday can present problems for employers.

Employees who feel under pressure and unable to take annual holiday should be encouraged by line managers to take the time off for their health and motivation. Proactive employers should periodically check their employees’ remaining annual holiday balance and remind workers that it needs to be used up by the end of the holiday year. The first four weeks of employees’ statutory annual leave will be lost if it is not taken, except in cases of sickness absence (see note of COVID-19 amendment in Overview).

If an employee refuses to take leave, there is no specific statutory way to ensure an employee takes their holiday, although employers can specify workers take leave on certain dates. However, employers do have a contractual obligation to take care of employees’ health. If staff are exhibiting signs of stress and exhaustion, employers must consider ways of alleviating this, which could include requiring them to take a period of annual leave.

For example, in Mark Hone v Six Continents Retail Ltd (2005), the Court of Appeal upheld an award of nearly £22,000 as compensation for psychiatric injury caused by working an average of 90 hours per week, seven days a week without a break. The employer was aware of the employee’s workload, and there were sufficiently plain indications of impending harm to the employee’s health for a reasonable employer to do something about it.

Employers can encourage workers to request holiday as far in advance as possible and remind employees how much holiday they have left. Employers should not criticise employees for taking holiday and can ask those who have not submitted any holiday dates to do so well before the end of the holiday year.

Employers must not give payment in lieu of the annual leave apart from on termination of employment.

The legal position about carrying forward holiday into the next holiday year is quite complicated. The position depends on the reason for wanting to carry the holiday over and on how much holiday is affected.

(COVID-19: the law on carrying over holiday has been temporarily amended to take account of the Coronavirus emergency. See note in Overview above.)

The minimum annual holiday in the UK is 5.6 weeks. This is made up of four weeks (that originally came from the EU Working Time Directive) plus an additional 1.6 weeks making the total annual holiday allocation for UK full-time workers of 28 days. The statutory minimum four weeks’ holiday is treated differently to the additional 1.6 weeks given in the UK.

After numerous court and tribunal cases the following rules apply:

  • The first four weeks of statutory annual leave (the holiday entitlement under the Working Time Directive) cannot generally be carried forward into the next holiday year.
  • If the four weeks leave is not taken within the holiday year in which it accrues, then it will be lost.
  • If a worker is unable to take holiday in the correct holiday year because of maternity, parental leave, sickness or injury, then the four weeks’ holiday may be carried forward to the next holiday year.
  • If an employer refused to provide paid holiday, making it impossible for the worker to exercise their holiday rights in the correct holiday year, then the four weeks’ holiday may also be carried forward.

The 1.6 weeks’ extra annual leave (in excess of the four weeks required by the Working Time Directive) is not protected in the same way. Workers are not entitled to carry this leave forward or to payment in lieu if they have been unable to take this holiday because of sickness. The extra 1.6 weeks (eight days) of holiday can be carried forward into the next holiday year if an agreement such as a written employment contract provides for this. Without an agreement with the employer, there is no right to carry the 1.6 weeks holiday forward. This applies even the worker has been unable to take holiday due to sickness (see Sood Enterprises Ltd v Healy, 2013 and TSN v Hyvinvointialan, 2019).

Employers can insist that accrued holiday that is carried forward because of maternity, illness or injury and so on must be used within 18 months of the end of the leave year in which it accrued (see Plumb v Duncan Print Group Ltd, 2015).

Overall, the predominant trend in case law seems to be that holiday pay should take into account commission, overtime, bonuses and other allowances. Employers should ensure that holiday pay takes these into account. The key points from the leading key cases are summarised below.

  • For employees who receive 28 days’ holiday, the extra elements only have to be included when working out the four weeks of the employee’s holiday pay. Although employers can also choose to take these extra payments into account when working out the remaining eight days’ holiday, they do not have to.
  • The combined effect of the cases is that workers' holiday pay for the four weeks' annual leave should reflect payments that they receive for overtime or commission the worker would normally earn.
  • The leading case of British Gas Trading v Lock (2016) particularly refers to results-based commission payments. The courts concluded that commission payments must be included in the calculation of holiday pay as it was part of the claimant's normal remuneration. Otherwise employees may avoid taking annual leave.

Commission payments must therefore be included in holiday pay calculations only in respect of the four weeks’ annual leave which originally was collectively agreed under the EU Working Time Directive.

More information on other key cases concerning ‘extra payments’ and holiday pay are cases are available in our holiday pay case law section.

As mentioned above, the leading case on elements of holiday pay is the Court of Appeal and the ECJ decisions in the case of Lock v British Gas Trading Ltd. Other leading UK decisions include the joined appeals in Bear Scotland Limited v Fulton and others; Hertel (UK) Ltd v Wood and others; Amec Group Ltd v Law and others (2014).

Amec Group Ltd v Law (2014) – confirmed that regular non-guaranteed overtime payments were 'normal pay' and should be included in holiday pay calculations.

British Airways plc v Williams (2012) – established that pilots' allowances for the time spent flying must be taken into account for the purposes of calculating the amount of holiday pay to which they were entitled during annual leave.

Neal v Freightliner (2013) – a depot worker's enhanced pay premiums when working in excess of the contractual seven hours a day should have been reflected in his holiday pay rather than just his basic salary. It was irrelevant whether the overtime was voluntary or not. This decision was settled out of court before going to appeal and so is not binding.

Patterson v Castlereagh Borough Council (2015) – the Northern Ireland Court of Appeal confirmed that voluntary overtime should be included for the purposes of calculating holiday pay.

The result of these cases is that employers should now include additional elements of pay that are regularly received by workers when calculating holiday pay. If they are regularly working overtime, it is likely that overtime is part of their normal hours and should be taken into account when calculating holiday pay.

All aspects of pay that are 'intrinsic' to the performance of the work may have to be included in the calculation of holiday pay. In principle, such payments might include bonuses, commission, overtime pay, results-based or performance-related pay, call-out supplements and anti-social hours allowances.

There is legislation which limits any claims for underpaid holiday pay to a maximum of two years' back pay. (For more information, see the related Q How far back can employees make retrospective claims for incorrectly calculated holiday pay?).

Aspects of the worker's total remuneration that are intended only to cover costs when performing the task do not have to be included in the calculation of holiday pay. Radius allowances and travelling-time payments do fall within the definition of 'normal remuneration' when calculating holiday pay. However, expenses ancillary to travel, such as fares, are not included.

Risk management

As the numerous cases show, the legal principles on which holiday pay is based are complex. New case law is still emerging. Employers should regularly review their existing holiday pay arrangements to ensure extra payments are included so that any risk from holiday pay claims is minimised. Certain issues concerning how to quantify the claims are still evolving.

Employers may want to consider how often they rely on voluntary overtime or examine commission policies to see which additional payments form part of their workers' salary, or perhaps try to vary commission structures. This will be difficult if these have become contractual, unless the employees agree to a variation.

Q&As

Most workers on zero hours contracts are entitled to holiday pay based on the number of hours they work. Where hours of work are variable it may be difficult to work out this entitlement. Recent case law has changed the way zero hours workers’ holiday is calculated.

Former method

Historically, to calculate a zero hours worker’s holiday entitlement, employers multiplied the number of hours worked by 12.07%. This percentage was in accordance with an Acas booklet ‘Holidays and holiday pay’ which advised how to for calculate the pay of casual workers. The percentage was based on taking the 5.6 weeks holiday, dividing it by 46.4 weeks (which is the number of weeks in a year minus 5.6 weeks). The statutory holiday entitlement of 5.6 weeks is therefore equal to 12.07% of normal total hours worked in a year. This method is no longer the best approach.

The Working Time Regulations say that if a worker does not have normal working hours, a week's pay is the worker's average weekly pay in the 12 weeks before the calculation date.

Current method

Following the case of Harpur Trust v Brazel and UNISON, 2019 (see Recent case law below), workers with irregular hours or zero hours contracts patterns are entitled to a minimum of 28 days’ annual leave which should be paid at the rate of a normal week’s pay or, if pay is irregular, then the average payment for the preceding 12 weeks.

Note that the 12-week reference period increased to 52 weeks with effect from 6 April 2020.

Zero hours contract and similar workers are therefore entitled to holiday pay at their usual hourly rate multiplied by 5.6. Any weeks in which no remuneration was payable are excluded from the 52-week average.

Employers can use the government website calculator to work out Holiday entitlement.

If a part-time worker increases or decreases their hours part way through the holiday year, the employer may need to increase or decrease the holiday entitlement but is not required to change the holidays which have already accrued to date.

Reducing hours

If a worker moves from full-time to part-time work, they retain the right to the full untaken holiday which had accrued but had not been taken while they were working full time. The employer is not entitled to adjust the already accrued entitlement to reflect the reduction in working time. However, the on-going holiday entitlement can be recalculated from the point that the working pattern changes.

Increasing hours

Employers should recalculate and increase the holiday entitlement which accrues from the point in time when the hours increase.

For example, John works five days a week and is entitled to 28 days holiday a year. Exactly half way through the holiday year he decreases his hours to four days a week. As six months have gone by and he has not taken any holiday, he has already accrued 14 days’ holiday at that point. Fourteen days holiday would equate to two weeks and four days off when he was working full-time. The employer must not reduce these 14 days already accrued.

Once he switches to the four-day week, the 14 days’ holiday which has accrued goes further on a part-time basis than it does on a full-time basis, because John needs fewer days holiday to eat into more working weeks. He can take three weeks and two days off.

He will however only accrue 11.2 days holiday as his entitlement for the rest of the holiday year, because of his new hours. This will amount to a further two part-time weeks and 3.2 days off. (This is because of his 22.4 days new annual entitlement is divided by two as this only accrues for the second half of the holiday year.)

Case law has confirmed that:

  • because the purpose of paid holiday is to enable the worker to rest, the entitlement to paid holiday accrues and must be calculated with regard to the work pattern specified in the contract
  • the entitlement to paid holiday must be calculated by reference to the days, hours and fractions of days or hours specified in the employment contract
  • employers do not have to retrospectively increase the holiday entitlement which a worker has already accrued if worker increases their hours part way through the year
  • employers should recalculate and increase the holiday entitlement which accrues from when the hours increase
  • on the termination of employment, workers are entitled to a payment in lieu of accrued but untaken holiday, calculated on the same basis as if they had been at work.

(See Zentralbetriebsrat der Laneskrankenhauser Tirols v Land Tirol [2010] and Greenfield v The Care Bureau Ltd (C-219/14 11 November 2015).

Other points for employers to bear in mind include:

  • Technically the recalculation of holiday entitlement applies only to the 4 week EU minimum holiday entitlement under the Working Time Directive rather than the 28 days entitlement under the WTR. However, most employers will recalculate the contractual holiday entitlement from when the hours increase or decrease, even if that is over and above the four-week EU minimum.
  • Employers who get this wrong may face claims under the Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations and the Part-Time Workers Regulations, as well as the Working Time Regulations.

See our Part-time workers Q&As and our Working Time Regulations Q&As for more details.

Holidays and sickness absence involve complex issues which have been the subject of high profile court cases. The starting point is that workers are entitled to holiday pay during sickness absence, even if they are not entitled to statutory sick pay.

There are three core matters for employers to consider:

  1. Workers are normally entitled to paid statutory holiday while they are off sick
  2. Employees who have been off sick for the part or whole of a holiday year are normally entitled to pay in lieu of accrued statutory holiday if their employment ends
  3. Holiday untaken due to sickness can normally be carried forward into the next leave year.

(COVID-19: the law on carrying over holiday has been temporarily amended to take account of the Coronavirus emergency. See note in Overview above.)

Workers who are off sick continue to build up entitlement to paid holiday, and case law has raised the issues which employers should take into account.

Entitlement to leave

Workers on sick leave accrue the four weeks’ annual holiday they are entitled to under the Working Time Directive. (This does not apply to the remaining 8 days of the 28 days’ paid holiday applicable in the UK.) This means:

  • The right to annual holiday is not lost at the end of a holiday year in which the worker has been on sick leave.
  • Employers should not force workers to take holiday while on sick leave or require them to use the holiday or lose it.
  • An employee who gets sick during pre-arranged annual leave can stop their annual leave, take sick leave, then resume the remainder of their annual leave at a later date.
  • Workers on long term sick leave could potentially accumulate significant periods of untaken leave which should be taken once the worker returns to work or paid for if they leave.

Timing of leave

Workers must be allowed to take accrued holiday on their return to work. This holiday could be part of a planned gradual return to work after a long period of sickness absence. Workers can also choose to take holiday instead of sick leave while off sick.

  • Employers should agree when holiday accrued during sick leave will be taken.
  • Accrued statutory holiday not taken due to sickness can be taken later - even if it is during the next holiday year.
  • An employee on sick leave does not have to show they were unable to take holiday because of illness for it to be carried forward.
  • If a worker has been unable to take holiday within a holiday year due to sickness absence, they may carry over that entitlement only for a set period of 18 months.

The employer must assume that if the employee doesn’t ask to take holiday while sick, this means the employee wishes to carry it forward to the following year.

Termination of employment

  • Where the employment relationship ends, workers are entitled to take the holiday, or to any pay in lieu of the holiday, which was not taken due to illness. This is the case even where the worker was on sick leave for all or part of the holiday year in question.
  • Workers are entitled to payment in lieu of leave which was not taken due to sickness on termination, even if they have not requested for it to be carried over to another leave year.
  • Workers on long term sickness absence can claim full holiday pay for the whole period of their absence when their employment terminates.

Policies

Perhaps the easiest way to deal with many of the points arising from the cases is to implement holiday and sickness policies that allow for all contractual and statutory holiday to be carried over for both sick and healthy employees.

Workers cannot insist that additional contractual holiday accrues during sickness absence, although employers may wish to allow this. Alternatively, employers may limit any holiday which accrues during sick leave to a maximum of four weeks’ holiday provided the relevant policy says so.

Employers must not have holiday policies which state that all untaken holiday will be lost at the end of the holiday year, at least as far as those on sick leave are concerned. Workers on long term sick leave could potentially accumulate significant periods of untaken leave which should be taken, or paid for, once the worker returns to work or leaves.

  • When an individual is on long-term sick leave, only four weeks' annual leave carries over automatically and not the additional 1.6 weeks granted by UK law. Employers can therefore choose to limit the holiday that can be carried over to four weeks' leave in their contracts and absence policies.
  • The longer 5.6 weeks' leave under the UK WTR or contained in the workers' contractual entitlement does not all have to be carried over unless there is an agreement in place.
  • Employers must decide how to deal with the additional holiday conferred by the WTR (and/or any contractual holiday). This must be dealt with in their sickness or absence policies.
  • Employers with private health insurance schemes should check how their paid annual holiday works. Workers who are absent for years on permanent health insurance could accumulate a considerable right to annual holiday (and pay in lieu). It is not certain if that would be payable by the insurer, but insurers may attempt to deny cover.

Practical points for employers

Employers may face claims from workers who claim they are sick while overseas on holiday. Policies should provide for notification to the employer on the first day of sickness absence and for obtaining medical certificates (either abroad, if possible, or on their return). However, setting out a procedure to follow if sickness occurs abroad may in itself encourage workers to make fraudulent claims. Problems will arise if the employee says they are too sick to travel.

The best approach is to suggest that workers take their paid holiday. If workers do not want to take payment for holiday during sick leave, then the employer must agree that accrued entitlement may be taken even in a subsequent holiday year. Employers cannot force staff to take paid holiday leave during sickness absence to stop their staff accruing long periods of untaken leave.

  • Employers should continue to ask for certification of illness from any employee who tries to convert holiday into sick leave and incorporate a standard reporting procedure into their holiday policies.
  • Employers must generally be very careful with workers who are on long-term sick leave as extra costs will be incurred and they are also likely to be protected by the disability discrimination provisions in the Equality Act 2010.
  • Employers may contractually limit the carry-over period for leave – at the moment the safe period appears to be 18 months. (Alternatively the carry over period for untaken leave may be dealt with by collective agreement.)

Employers should budget for future possible claims, resulting from holiday already accrued, but not taken, by workers on long-term sick leave.

The relevant cases include:

Commissioners of Inland Revenue v Ainsworth and others [2005] IRLR 465, CA
Stringer and Others v HM Customs (2009] IRLR 214
Stringer and others v HMRC [2009] ICR 985, HL
Pereda v Madrid Movilidad SA [2009] IRLR 959, ECJ
Fraser v Southwest London St George's Mental Health Trust (unreported, EAT/ 0456/10, 3 November 2011, EAT)
Lyons v Mitie Security Ltd [2010] IRLR 288 EAT
NHS Leeds v Larner [2011] IRLR 894, EAT and [2012] EWCA Civ 1034 25 July 2012. CA.
KHS AG v Winfried Schulte (unreported, C-214/10 22 November 2011, ECJ)
Sood Enterprises v Healy (unreported, EATS/0015/12 14 March 2013, EAT)
Plumb v Duncan Print Group Ltd (unreported, UKEAT/0071/15 18 June 2015, EAT
.

(See also our Case law on holiday pay.)

However, there is legislation and case law which limits these back claims. The basic position is that claims relating to a series of underpayments of holiday can only relate to a series which is not broken by any gaps of three months or more between each underpayment in the two years before the claim is made.

Two-year limit

The Deduction from Wages (Limitation) Regulations 2014 (SI 2014/3322) imposes a two-year cap on claims for unlawful deductions from wages relating to any fee, bonus, commission and so on, including claims in respect of holiday pay. The regulations are intended to protect employers from large back-dated claims.

This limitation period only applies to the 20 days’ annual leave entitlement under the Working Time Directive, not the full 28 days’ entitlement. (For more details, see our Working time regulations Q&As.)

The regulations also state that the right to paid holiday is a statutory right and not a contractual right. This is to prevent employees getting around the two-year limit by using the normal six-year time limit for contractual claims in the civil courts.

Three-month gaps

There is a two-year retrospective limit. However, there was also thought to be a three-month limit relating to gaps in under payments. In the leading Bear Scotland Ltd v Fulton 2014 case, the court decided that a gap of more than three months between deductions broke a series.

However, the Court of Appeal in Northern Ireland held that it does not in the case Chief Constable of Northern Ireland Police v Agnew (2019). As NICA said, Northern Irish law did not say that a series is broken by a gap of three months or more. The relevant rule is worded identically to the Employment Rights Act 1996 on this point - so the case strongly suggests that employees can claim back pay for the last series they were underpaid even if there was a break of more than three months.

A gap of more than three months in a series of deductions may not break the link in back claims. And a claim could be made for those underpayments.

As far as ex-employees are concerned, they can claim retrospectively for back holiday pay. However, the claim must be made within three months of the date when the deduction was made. So, if the last failure to pay was the date when an employee left that employer, the time limit will be three months from their departure date. Retrospective claims will therefore be limited in most cases.

(See also our Case law on holiday pay.)

Employers can reward long service with extra annual holiday but this risks age discrimination against younger employees.

Additional holiday entitlement can be justified for employees with long service if it falls within the Equality Act 2010 exception for service-related benefits. This must be based on proven business need. Service-related benefits are allowed if the length of service criterion is up to five years. More than five years is allowed if the criterion fulfils a business need, such as rewarding workers’ loyalty or experience. The employer needs evidence to prove that the increased holiday entitlement does fulfil a business need, such as information from staff monitoring, surveys or focus groups leading to a reasoned conclusion by the employer.

Time off for bank holidays should be calculated pro rata for part-time workers based on the hours a week that they work, regardless of whether they work on days on which bank or public holidays fall.

For example, Amanda works four days a week as an IT help desk analyst. Assuming the contract provides for full-time employees to have bank holidays off, Amanda should receive 4/5 of the eight bank holidays given to full-time employees. This means she has an entitlement of 6.4 days (rounded up to 6.5). This would then be added to her annual leave, and any bank holidays that fall on her normal days of work would then be taken from the total allowance.

(For more information, see our Part-time workers Q&As.)

The issue of maternity or paternity leave and bank holidays can be a perplexing one, and it has given rise to differences of opinion between employees and employers.

The basic position (contrary to popular belief) is that employees have no automatic right to take paid leave in lieu of bank holidays that fall during their maternity or paternity leave. Some employers can, and do, require employees to work on bank holidays. There is no blanket rule that applies: instead the position depends on how bank holidays are treated in the employment contracts.

The usual solution is that, if the employee on maternity or paternity leave would have had a contractual right to bank holidays as paid annual leave, the employee should be given time off in lieu of bank holidays. Employers must take into account both what the contract says and the statutory minimum amount of annual leave.

If employers intend to argue that the bank holidays are not contractual benefits, they should be aware that the cumulative effect of some EU and UK case law may give the employee an argument that accrued annual leave includes bank holidays as well.

(For further details, see our Maternity, paternity, shared parental and adoption leave and pay Q&As.)

Some bank holidays, for example Christmas and Easter, were originally fixed to coincide with dates in the Christian calendar. Problems can arise if an employee with religious beliefs wishes to have time off on a bank holiday to worship, and it’s usual in their workplace to work on bank holidays.

The position with bank holidays is essentially the same as with any other request for holiday for religious purposes, or in connection with Sunday working. The starting point is that the Equality Act 2010 provides protection for all workers who may suffer discrimination or harassment because of their religious or philosophical beliefs. But the Equality Act does not give employees an automatic right to bank holidays or other time off around any period with religious significance.

The employer needs to examine the terms of the employment contract. If an employee had agreed to work on bank holidays in their contract, the employee cannot then simply refuse to work for religious reasons.

If an employee asks if they can use some of their holiday entitlement to have the bank holiday off for religious reasons, it is potentially indirect discrimination to refuse. However, whether a refusal can be justified will depend upon the facts, the size of the organisation, other employees available and so forth. A refusal could amount to indirect religious discrimination if the employer dismisses the request out of hand and the employee can show they have suffered a particular disadvantage when compared with other employees. The employer would then need to justify the indirect discrimination by establishing that the decision to refuse the time off was a proportionate means of achieving a legitimate aim.

Acas has produced guidance Religious festivals, holy days and observances which encourages employers to be sympathetic to requests for religious holidays where possible.

(For further information, see our Religious discrimination Q&As.)

Harpur Trust v Brazel and UNISON |Court of Appeal| 6 August 2019

[2019] EWCA Civ 1402

Issue: Holiday pay – zero hours and irregular hours workers

This case predates a change to holiday pay averaging periods that came in on 6 April 2020 (see below) but the principles in the case still apply.

A music teacher worked during term times for the Harpur Trust. She was on a permanent contract but was only paid for work done. During the school holidays she had no work from the trust. She usually worked 32 weeks a year over three terms.

Her employer paid holiday entitlement of 12.07% to the term-time only staff. This was calculated in accordance with the ACAS booklet 'Holidays and holiday pay' which suggested this percentage for calculating the pay of casual workers. The organisation calculated her earnings at the end of each term and paid her one-third of 12.07% each term. (This standard calculation is based on 5.6 weeks’ holiday, divided by 46.4 weeks. The music teacher got 19.3 days’ holiday, or 32/46.4 x 5.6 weeks = 3.86 weeks of leave).

Brazel brought a tribunal claim for unlawful deductions from her wages because of underpayment of holiday pay through not paying the full 28 days (5.6 weeks) of holiday pay. The case attracted the support of teachers’ unions keen to help other workers also not paid for part of the year.

Decision

The Court of Appeal decided that such workers are entitled to a minimum of 28 days’ annual leave which should be paid at the rate of a week’s pay and, if this is irregular, then the average over the previous 12 weeks.

Implications

This decision affects hundreds of thousands of employees working with irregular hours or patterns, or on zero hours contracts.

Permanent workers on a part-year contract, such as term-time only, should not have their 5.6 weeks’ statutory holiday entitlement under the Working Time Regulations pro-rated to reflect the fact that they do not work for the full year. All workers are entitled to a minimum of 28 days’ paid annual leave, even if they do not receive work or pay for parts of the year. The WTR make no provision for pro-rata calculations. The regulations simply require a week's pay to be identified and multiplied by 5.6.

Employers who have been using 12.07% of earnings as a basis for the calculation of holiday pay for casual workers should stop using this method. The holiday must be paid at the rate of a normal week’s pay or, if pay is irregular, it should be based on the average payment for the preceding 52 weeks instead (the averaging period for variable workers increased from 12 to 52 weeks from 6 April 2020).

Zero hours workers are entitled to holiday pay and should be paid their usual hourly rate multiplied by 5.6. Employers can use the government’s Calculate holiday entitlement tool for this.

Bank holidays

Over recent years there have been various proposals for a new permanent bank holiday, and there may be further attempts to introduce a new permanent bank holiday at some stage. Dates that have previously been suggested include a Monday bank holiday after Remembrance Sunday in November or an additional bank holiday in the autumn, as there is a long period in the run-up from August to Christmas with no bank holidays. Other ideas include 24 April, St George’s day.

Holiday pay for variable hours workers

For workers with no normal hours of work or where the rate of pay varies, holiday pay is calculated on the basis of the average pay received by the worker in the previous 12 working weeks. This will increase to 52 weeks from 6 April 2020 under the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018).

Brexit

The government has removed provisions in the withdrawal agreement which protected employment law rights after leaving the EU. This has led to speculation that post-Brexit the government might reduce workers’ rights in some areas of employment law.

Working time rights have been identified in the press as one of the main areas which could change. Likely changes could include limiting employees’ ability to accrue holiday while off sick and removing the cap on maximum weekly working hours. The eventual outcome remains subject to the terms of any trading deal reached with the EU in the course of 2020 and possibly beyond.

For information on what Brexit may mean for employment law, read the blog by our Public Policy Advisor (Employer Relations) and visit our Brexit hub.

Explore our related content

Top