holidays

The two main legal issues that employers need to bear in mind in relation to holiday entitlement are employees' contractual terms on holidays and the need to comply with the minimum holiday entitlement laid down by the Working Time Regulations 1998 (as amended). There are also some more specific issues that may arise in relation to employees who are on maternity, paternity, adoption or parental leave (impact of family leave ).

Contract terms and the Working Time Regulations

Employees' holiday entitlement is likely to be spelt out in their written contract of employment, if they have one. Even an employee who does not have a written contract must be given a written statement of his or her holiday rights, including entitlement to public holidays and holiday pay (documenting the contract). The detail must be sufficient to enable the employee to work out his or her exact entitlement, including any entitlement to accrued holiday pay when his or her employment ends.

When drafting contract terms on holidays, employers need to ensure that the terms meet the requirements of the Working Time Regulations 1998. However, if an employer gives more generous holidays than the Regulations require, it is free to decide the terms of that extra entitlement. If a company wants those terms to differ from the terms of entitlement to holidays under the Regulations, such as in relation to the calculation of holiday pay, it should make that clear in the contract. It is also useful to remember that many of the requirements of the Regulations can be modified by a written contract of employment, which counts as a 'relevant agreement' (flexibility by agreement ).

When drafting contract terms on holidays, employers will need to cover some or all of the following issues:

1. The number of days holiday to which the employee is entitled.
   Employers need to decide:
   
   - what holiday entitlement to give;
   
   - whether entitlement should rise with length of service; and
   
   - how entitlement is affected by periods of maternity, paternity, adoption and parental leave (impact of family leave ).
   
   The minimum is set by the Regulations, which provide that all workers are entitled to 4.8 weeks' holiday each year. A week's holiday should allow the worker to be away from work for a week. For example, someone working a five-day week is entitled to 24 working days off work a year and a pro-rate basis for part-timers. (From 1 April 2009 the Government intend to increase the minimum to 5.6 weeks). In principle, awarding employees more holidays the longer their length of service could amount to indirect age discrimination. The age equality legislation provides a limited exemption, however, for service-related benefits of this type. From 1 October 2007, the minimum holiday entitlement under the Regulations increases from four weeks to 4.8 weeks in each holiday year. From 1 April 2000 there will be a further increase to 5.6 weeks.
2. The timing of the holiday year.
   Employers would be well advised to stipulate in the contract when the holiday year begins. The Regulations allow for the worker's leave year to be set by a relevant agreement (flexibility by agreement ). However, if there is no agreement, then it runs from the date when the worker's employment began or, if he or she started work before 2 October 1998, from 1 October. Specifying the holiday year in the worker's contract allows the employer to operate one holiday year for the entire workforce.
3. Carry-over of holidays.
   Employers may wish to decide whether any holiday entitlement not used in one leave year can be carried forward and if it can, on what terms. Under the Regulations, a worker must be allowed to take four weeks' leave in the year it is due. But there is nothing to prevent an employer agreeing with an employee to carry over additional leave entitlement into the following year. From 1 October 2007, only four of the 4.8 weeks must be taken in the leave year to which it relates. This means that 0.8 weeks holiday can be carried over to the next holiday year (but not longer) if this is agreed.
4. Payment in lieu of holidays.
   Employers may want to consider whether there are any circumstances where they would want the power to require the employee to accept a payment in lieu of holiday. Under the Regulations, from 1 October 2007 to 1 April 2009, four weeks of holiday entitlement cannot be replaced by a payment in lieu except at the end of the worker's employment. However, 0.8 weeks of holiday and any additional contractual entitlement could be substituted by a payment.
5. Public holidays.
   The contract will need to state whether the employee is entitled to any public holidays and what happens if a public holiday falls on a day when the employee would not normally be working. There is no legal obligation on an employer to allow its workforce time off on a public holiday, although many employers choose to do so. Any public holidays that a worker is given count towards his or her holiday entitlement under the Regulations. BERR can give details of public holidays for the current and future years in England and Wales and information on public holidays in Scotland can be obtained through the Scottish Executive ( Public holidays ). This information is also available from your Association.
6. Notice of holiday dates.
   Employers will wish to make clear what notice employees must give of their holiday dates. The Regulations allow this to be set by a relevant agreement. If there is no agreement, then the worker must give the employer notice at least twice as many days before the holiday begins as the holiday is to last. For example, if the employee wants to take a fortnight's holiday, he or she must give the employer at least four weeks' notice. The employer can respond by requiring the employee not to take holiday on those days, as explained below.
7. Annual shutdowns and peak periods.
   Some companies may wish to stipulate that employees will be required to take holiday at a certain time, such as over Christmas and the New Year or during an annual shutdown. It may also be necessary to make clear that there are periods when holiday cannot be taken, such as at busy times in the production cycle. The Regulations allow an employer to control when holiday is taken. If an employer wants a worker to take holiday on certain dates, it must give the worker notice that is at least twice as long as the holiday is to last. For example, if a company wants a worker to take 10 days' holiday over Christmas and the New Year, it must give the worker at least 20 days' advance notice. (This is the notice required by the Regulations - it would, of course, be good practice to give the workforce as much notice as possible of an annual shutdown of this type.) Where an employer wants to prevent a worker taking holiday on certain dates, it must give the worker notice that is at least as long as the period over which the worker must not take leave. For example, if a worker has given the company notice that he or she wants to take two weeks' holiday but the company is unable to spare the worker for the first week of that period, the company must let the worker know that he or she cannot take that week at least one week before the holiday was due to begin. These notices do not need to be in writing, although it would be advisable for them to be. (Again, it would be good practice to give employees as much notice as possible of periods when they cannot be released.) Employers that do not allow employees to take leave during certain periods should bear in mind that they may need to establish that these policies meet objective business needs, in order to avoid indirect race or religious discrimination (race discrimination ) (religious discrimination ). The position of employees on family leave is dealt with elsewhere in the Guide.
8. Calculation of holiday pay.
   Under the Regulations, a worker is entitled to be paid a week's pay for each week's leave. A week's pay is calculated according to the rules laid down in the Employment Rights Act 1996, explained elsewhere in this Guide ( Calculating a week's pay ). If an employer wants pay for days of contractual holiday in excess of the statutory minimum to be calculated on a different basis, this needs to be made clear in the worker's contract.
9. Illness during holiday.
   Employers may wish to consider whether to allow employees to count periods of illness during holidays as sickness absence, leaving the holiday entitlement to be taken at a later date. (The Regulations do not deal with this issue.) An employee who is on sick leave is not entitled simultaneously to claim his or her holiday entitlement under the Regulations, in order to trigger the right to holiday pay. On the other hand, there is nothing to prevent a company giving employees the contractual right to take paid holiday while on sick leave
10. Calculation of an employee's holiday entitlement in the first and last year of employment.
    It would be advisable for a worker's contract to clarify his or her holiday entitlement in the first and last year of employment. This could simply follow the scheme in the Regulations. This says that workers who begin employment after the leave year has begun are entitled to a proportion of their annual entitlement, rounded up where necessary to the nearest whole day. The Regulations limit when workers can take their leave entitlement in their first year of employment, if they were recruited after 25 October 2001. They can take only the amount of their entitlement that has accrued by the time they want to take leave. They accrue one twelfth of their annual entitlement at the beginning of each moth, rounded up where necessary to the nearest half day. Employees who have not taken their entitlement under the Regulations by the time of leaving employment are entitled to a payment in lieu of the holiday not taken. The amount of that payment can be set by a relevant agreement. If it is not, it will equal the holiday pay due for the proportion of the holiday year that has passed, less any holiday already taken.
11. Recovery of overpayment of holiday pay.
    The contract should make clear that if an employee takes more holiday than he or she is entitled to during the course of a leave year, the company will be entitled to recover the overpayment of holiday pay by deducting it from the employee's wages or salary. It is advisable for the company to consult with the employee before making the deduction, in order to avoid an allegation that it is acting in breach of its implied obligation to maintain trust and confidence between itself and the employee ( Employer's implied obligations ). The Regulations say that a relevant agreement can require a departing worker who has taken more holiday than was due to compensate the employer by making a payment, undertaking additional work, or in some other way. If there is no relevant agreement, then an employer is not entitled to recover the overpaid holiday pay.

Since there may be many details to cover, employers may prefer not to spell out holiday terms in the body of an employee's written contract, but rather to refer in the contract to some other document where the detail can be found, such as a staff handbook, collective agreement or holiday policy.

Impact of family leave

The entitlement that an employee has to paid holiday under the Working Time Regulations 1998 is unaffected by the fact that he or she may be on maternity, paternity, adoption or parental leave for part of the leave year. The employee, therefore, is entitled to at least 4.8 weeks' paid holiday in addition to these forms of family leave. When calculating holiday pay under the Regulations (in accordance with the rules on a week's pay ( Calculating a week's pay )), any weeks when an employee is on family leave and receiving no pay or less than normal pay are disregarded.

Any contractual holiday entitlement that an employee has, over and above the 4.8-week statutory minimum, is not affected by ordinary maternity or adoption leave or paternity leave, because the legislation preserves an employee's terms and conditions during that period (holidays), (rights during paternity leave ), ( rights during adoption leave ).

It is advisable for employers to make clear in the contract how holiday entitlement is affected by taking additional maternity or adoption leave or parental leave. Take, for example, an employee who takes 26 weeks' ordinary maternity leave, 14 weeks' additional maternity or adoption leave and four weeks' parental leave in a particular holiday year. If her contract says nothing about how holiday entitlement accrues, but simply states that her annual entitlement is 25 days' holiday, she could argue that she is entitled to 25 days' holiday in addition to her maternity and parental leave. If, on the other hand, her contract says that holiday entitlement accrues over the course of the year but not during additional maternity leave or parental leave, her contractual holiday entitlement is (34/52 x 25) days, that is, 16 days. She must, however, be allowed 24 days, in order to meet the requirements of the Working Time Regulations, subject to the right to pay in lieu for 0.8 weeks.

An employee's contract may state that holidays must be taken on certain days in the year, such as public holidays or an annual shutdown. If these happen to fall while the employee is on family leave, he or she is not entitled to other days' off in lieu. All employees must, however, be allowed to take at least their 4.8 weeks' leave under the Working Time Regulations, subject to the right to pay in lieu for 0.8 weeks.

If an employee is on family leave for a substantial part or even the whole part of the holiday year, it may be difficult or even impossible to ensure that the employee also takes his or her holiday entitlement. All employees are entitled to a minimum of 4.8 weeks’ holiday a year, under the Working Time Regulations. Technically, an employee on family leave is not entitled simultaneously to claim their leave entitlement under the Working Time Regulations in order to obtain their holiday pay. On the other hand, the Regulations stipulate that an employer is not entitled to require an employee to carry over their holiday to the next holiday year, or to replace the holiday entitlement with a payment in lieu. Requiring the employee to forego holiday entitlement altogether could lead to a sex discrimination claim. The practical solution to this legal impasse is for the company to make the employee a payment in lieu of holiday, if the employee is happy with this: the employee is unlikely to challenge a payment to which he or she has agreed.

An employer can make a payment in lieu of any additional leave the employee may be entitled to under his or her contract, provided the employee's contract permits this or the employee requests it. The employer is free to decide whether to allow the employee to carry forward any leave not taken.