Holiday Pay For Leavers

Payment In Lieu of Accrued But Unused Holiday Entitlement

Holiday Pay For Leavers. Mr Conner was dismissed following a period of illness. On termination of his employment, he was entitled to payment in lieu of accrued but unused holiday time. His employment agreement stipulated that this would be computed at a rate of 1/365.

The Background

As a salaried employee, if Mr Conner had taken this holiday during the course of his employment, he would have received the same amount of pay as if he had been at work. However, when the contractual accrual rate of 1/365 was applied, the value of this accrued holiday was less than his salary.

Mr Conner brought a tribunal claim to recover the shortfall.

The Employment Tribunal Decision

The tribunal denied his claim, finding that the 1/365 contractual accrual rate was a “relevant agreement” for the purposes of the Working Time Regulations (WTR). The WTR governs pay in lieu of accrued holiday when an employee leaves during the leave year. It stipulates that the quantity owed in these situations will either be determined by a “relevant agreement” (which can include a contractual clause) or by a statutory formula.

Mr Conner filed an appeal.

The Employment Appeal Tribunal Decision

The EAT allowed the appeal. The standard method for calculating a week’s pay for a worker with regular working hours and consistent pay is to divide their annual salary by 52. This is the total sum paid for both working time and holiday time. A contract may alter the method for calculating accrued holiday pay. Nonetheless, a ‘relevant agreement’ must stipulate a method of calculation consistent with the WTR’s provisions. It cannot provide for a calculation that results in the employee being worse off than if they had worked instead of taking the leave or being paid for it.

Comments

This case reinforces the fundamental purpose of our holiday pay law framework, which is to ensure that employees are not dissuaded from taking their leave. If they are paid less than their normal wage during a leave period, they are less likely to take holidays.

Employers must ensure that contractual mechanisms governing the calculation of accrued holiday time do not result in a lower quantity of pay than the employee would have received if they had been at work.

Compliance Check

If you are not sure if your Holiday Pay on Termination clause in your contract is compliant, please send me a copy of your contract and I will review it for compliance with this ruling and other employment legislation.

Holiday Entitlement Toolkit

My Holiday Entitlement Toolkit provides simple and straightforward answers to common questions relating to Holiday Entitlement in the UK, such as how to:

• Calculate holiday for starters and leavers
• Calculate holiday entitlement for part-time and non standard working patterns.
• Deal with part days
• Decline or cancel a pre approved holiday
• Enforce a period of holiday on an employee or group of employees
• Deal with competing request for holiday
• Deal with an employee who goes ahead with a holiday which has not been authorised
• Calculate holiday pay

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