There are many ways that an employer can pay an employee holiday pay. The most common is to pay the standard rate for the hours you contract the employee to. Some employees, however, employ a method of rolled up holiday pay. This method has often seen criticism as being unfair. But is the criticism justified? Let’s have a look in our brief guide.

What Is Rolled Up Holiday Pay?

Before the Working Time Directive came into force in 1998, it was common for employers to not pay holiday pay. This changed with The Working Time Regulations Act, which put in place the Working Time Directive. This legislation provides workers with the right to paid holidays amongst other things.

Many employers attempt to circumvent the legislation by topping up workers’ hourly rates with a holiday pay allowance. In some cases, they even claim that the basic rate of pay includes holiday entitlement. Meaning the employer believes they are paying for holiday entitlement within the regular wage structure. In this situation, an employee will receive no pay when they are on annual leave.

Why is Rolled Up Holiday Pay Seen As A Bad Thing By Some?

Many employment activists see this pay as against the spirit of the law. This is because it can place workers in low paid roles in financially precarious situation when they take leave. Some believe it even deters workers from taking holidays.

Is it Illegal or Legal?

The issue of Rolled Up Holiday Pay is often seen in the English Courts and the European Court of Justice. The European Court ruled it to be illegal in 2006. The Advocate General, however, suggests that rolled-up holiday pay is not illegal in itself. He states that rolled up holiday pay is legal so long as there is something in place to ensure workers take their annual leave entitlement. On top of this, any arrangements to include holiday pay within basic pay must be transparent.

Are There Any Benefits to this Holiday Pay?

In certain circumstances, there are benefits to incorporating holiday pay within the basic pay structure. For example, casual workers who work a few hours each week may not want to take leave. They may prefer to benefit from the increased basic wage instead. 

Businesses may also benefit as they won’t need to factor holidays into their rotas. They can also avoid the constant requests for leave that other businesses face.

How Is Such Pay Affected for Zero Hour Contracts?

It is technically illegal to use rolled-up holiday pay for zero-hour contract workers. Having said this, the Advocate General and European Court rulings make the situation incredibly ambiguous. This has left many businesses loopholes to employ the method for holiday pay.

For many casual and zero-hour workers rolled-up holiday pay is commonplace. Those who receive it generally receive a 12.07% increase to their basic pay to accommodate annual leave. Others may see a percentage increase based on the average pay over a period of time. Either way, rolled-up holiday pay must be clearly noted on the employees’ payslips.

If you want to manage staff holidays and maintain statutory compliance with ease, try Papershift’s leave planner software. In addition, feel free to sign up for a free demo.

Written by Siva

I write & describe the value & benefits delivered by Paperhift's rota planning, staff time tracking, and employee payroll management software. Especially useful for Shift Planners, Rota Managers, Team Admins, and HR Teams 🙂