01 March 2006

Rolled up holiday pay

Rolled up holiday pay involves employers paying workers for their holiday entitlement by incorporating it into their hourly rate, rather than paying their workers at the time leave is taken. The practice is mainly used in relation to employees on short-term contracts or permanent shift workers. It leads to many workers not taking their holiday (although it is based on the presumption that they will take it when the temporary assignment ends).

However yesterday the European Court of Justice ruled that this practice is now unlawful, being contrary to the Working Time Directive which is regarded as a health and safety measure.

The ECJ ruled that the Directive does not preclude sums paid ‘transparently and comprehensibly' in respect of leave in the form of part-payments staggered over the year from being set off against payment for leave ‘which is actually taken by the worker'.

This ruling could cause chaos for employers and pay roll agencies, particularly in those sectors such as media, construction and manufacturing, where short-term contracts are common.

It is not yet clear whether this decision will promote a culture of leave taking, or whether the set off provisions will be exploited by companies which previously offered rolled up holiday pay.

Category: Article