1. Minimum entitlement – Under the Working Time Regulations 1998, workers (meaning anyone working under a contract of employment or any other contract to perform personally any work or services) are entitled to four weeks’ paid annual leave (20 working days). Bear in mind that an employer can choose to include bank holidays and public holidays within the four weeks unless the contract of employment specifies that the holiday is in addition to bank holidays and public holidays. Employers can also give employees more holiday than the strict statutory entitlement if they so choose.

2. Policy – It is sensible for employers to have their own holiday policy and for it to be easily accessible. It is important that the policy clearly sets out the various procedures such as who authorises an employee taking holiday, what records are kept, how holiday accrues and what happens to holiday entitlement on termination.

3. Holiday vs. sickness – The recent Court of Appeal decision of Inland Revenue v Ainsworth and others has an important impact on the law if an employee is off sick during a holiday year. It states that if a worker is off sick for all or a considerable part of the holiday year, workers are not entitled to holiday pay. The rationale behind the entitlement to leave is ensure that workers have a break from the pressures of work and ensure compliance with the minimum health and safety standards; as a result the Court of Appeal felt that if an employee was off sick for a significant period of time, those issues do not arise. If an employee also gets paid for their holiday over this period, it would just result in a windfall for them. Obviously this has an important impact as it overturns established case law that workers are entitled to four weeks’ paid leave even if they are off sick and employers may want to take advantage of this decision in the way they draft their holiday and sickness policy.

4. Amend policies – Holiday policies and sickness policies should therefore deal with what happens to holiday entitlement should an employee be off sick for a considerable period of time. It is of course, open to an employer to specify in their policy that employees are also entitled to their holiday even if they are off sick and set out whether it continues to accrue whilst they are off. However, as the legal position has now changed as a result of the Court of Appeal decision, you may want to consider whether you want to change your holiday policy. Obviously if the holiday policy has contractual status, you will need to get your employees’ consent before changing any of their terms and conditions.

5. Accrual during first year – Under the Working Time Regulations 1998, in the first year of employment, workers can only take holiday when sufficient days have accrued throughout the year, rounded up to the nearest half day. However, check your employees’ contracts of employment as there may be provisions which mean that this does not apply in the first year of employment. In subsequent years, there is no need for a employees to wait to accrue sufficient holiday over the year before taking leave.

6. Payment in lieu – The entitlement is to leave and not to money in its place. The holiday cannot be substituted by payment in lieu of holiday except on termination of employment. When employment is terminated, a worker is entitled to be paid for any holiday which they have not taken in the last holiday year on a pro rata basis. Obviously, some employers choose to give employees more than the statutory holiday entitlement and if you have done so, payment in lieu of the additional contractual holiday will only need to be made if there is such clause in your employees’ contracts of employment or if you have a history in your company of making such payments on termination.

7. Deductions for overpayment – If one of your employees leaves mid year and you want to be able to claim back from them the holiday they have taken that year which exceeds their pro rata entitlement, you can do so provided that the contract of employment contains a specific clause on this issue. If there is no such contractual term in place, deducting such sums from an employee’s pay will be an unlawful deduction from their wages.

8. Maternity – If an employee is on maternity leave, during Ordinary Maternity Leave (the first 26 weeks) , contractual and statutory holiday pay will continue to accrue. During Additional Maternity leave (the second 26 weeks) statutory entitlement to paid annual leave continues to accrue. Contractual holiday may also continue to accrue if this is provided for in the employee’s contract or the staff handbook. The employer can serve notice on the employee, requiring her to take statutory holiday under the Working Time Regulations 1998. By requiring the employee to take her statutory holiday entitlement during maternity, she is prevented from taking that holiday on returning from maternity leave. You could not use the same mechanism with contractual holiday, unless the handbook/contract allows it.


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