Holiday Pay

WORKING TIME REGULATIONS 1998 Including revisions effective from October 2007

Entitlement to Holiday Pay

For information only

The above regulations came into effect on October 1 1998. They are a result of the implementation of the European Working Time Directive into domestic law (commonly referred to as the Social Chapter).

The regulations deal in the most part with maximum working hours (the 48 hour week) but also made two new provisions. Regulation 36 substantially widens the legal definition of a 'worker'. Although limited to the regulations this definition includes agency workers if they are individuals (those operating via limited companies and the self employed are not covered by these provisions). Regulations 13 to 16 provide for a statutory right for workers (including agency workers and part time workers) to be paid leave of four weeks per year after 1999.

The secondary issue is therefore who is responsible for making that payment? Regulation 36 is not entirely clear. One interpretation is that it is the agency, on the basis that they pay the worker. However a second interpretation is that it is the principal (the client, i.e. the organisation in which the temporary worker actually works) on the basis that payment is only made to agency workers on written instruction of the client who is liable to reimburse the agent under contract. Either way the worker has the entitlement by law.

This is a measure to bring agency and other workers in line with the vast majority of the working population who have the benefit of paid leave under contracts of employment. The measures originally took effect only after a  worker has been in continual employment for a thirteen week period*. An amendment taking effect from October 25 2001 means that all holiday is accruable and payable from the start date. These provisions do mean that inevitably there has been an increase in the cost of agency workers. This amounts to an additional 8.3%. (See update below)

Payments do not have to be made to coincide with time taken off, as long as the payments are made within the year they refer to and the time is taken off. Many agency workers have taken advantage of this by requesting that an additional amount is paid per hour to cover holiday. This enables agency workers to move freely and take time off when they please and puts the money in their pockets immediately, rather than it sitting in a special account until such a time they take holidays. (See update below)

Soon after the regulations took effect it became clear there was an anomaly which allowed different interpretations of the 13 week rule. Some employers believed the regulations allowed payment of holidays from the start of the employment, but these only fell due after thirteen weeks and others believed that the thirteen week period was separate and accrual of holiday only took effect after that period had been completed. 

An amendment to take effect from October 25 2001 means that all holiday is accruable and payable from the start date. The amendment also clarified that, employers can only control when workers take holiday to the extend of the workers minimum accrual, calculated at one twelve of the annual allowance. In a typical full time situation therefore, where a worker has twenty days leave per year, the worker now has a statutory right to 1.66 days off per month. 

The regulations also allow for a rounding up to give units of a half day for this purpose, although rounded up part of days can be subtracted from the remaining amount of holiday due in the year. Holiday pay is also payable in lieu of notice immediately upon commencement into to employment.

UPDATE OCTOBER 2007

1) From 1 October 2007 the minimum entitlement to paid holiday rose from 20 days per annum to 24 days and will rise again on 1 April 2008 to 28 days. As a component of the hourly rate, the proportion for holiday rises corresponding from 8.3% to 10.17% to 12.07%

2) In 2007 the European Court of Justice ruled that the practice of rolled up holiday pay was unlawful. This occurs when temporary workers are paid the proportion of their pay designated for holiday pay before the leave has been taken. However, while the Department of Trade and Industry has changed it's guidance, this ruling has not been enacted into English Law. This remains the case in 2015. It seems unlikely this will happen. Therefore as long as holiday pay is clearly identifiable it should be the choice of the employee how it is paid.