Be warned: don’t be too nice to your employees this summer!
Well, we don’t actually mean don’t be nice, but if you have a family-friendly holiday policy, then you could be at risk of discrimination claims. Those well-meaning employers that give first refusal for summer leave to parents could find themselves subject to costly claims of direct and in-direct sex discrimination from staff without children. So how can you manage holidays effectively without upsetting key chunks of your workforce?
Holidays: the legalities
The Working Time Regulations 1998, amended by the Working Time (Amendment) Regulations 2007, set out the following requirements for paid holiday entitlement:
1. Workers are entitled to 5.6 weeks’ holiday per year (28 days for employees working a five- or six-day week). Personnel hired to work fewer than five days per week are also entitled to 5.6 weeks’ holiday per year, although the amount of pay for the week will obviously be less. The entitlement should be pro-rated for part-time employees, for example, if they worked three days a week, their statutory annual leave entitlement would be 16.8 days (3 x 5.6 weeks).
2. Entitlement to paid annual leave accrues from the first day of employment.
3. During the first year of employment, employees have a right to take (and be paid for) one twelfth of their annual holiday entitlement for each month they are employed, rounded up to the nearest half day. Holiday accrues on the first day of each month, in advance. This provision affects all workers, including those on short-term contracts as well as casual staff.
4. For those joining or leaving the organisation during the course of the year, holiday entitlement is pro-rata, based on the portion of the year worked.
5. The first four weeks of statutory holiday must be taken in the leave year in which the leave is earned.
6. Statutory holiday leave cannot be replaced by pay in lieu (other than for leave not taken when employment is terminated).
7. A week’s leave should normally be equivalent to a week’s working time.
8. Employers can require holiday leave to be taken on specific days or dates, provided that prior notice is given amounting to at least twice the period of leave to be taken.
Employers may set their holiday year to be any period of 12 months, running, for example, from 1 January to 31 December or from 1 April to 31 March. Alternatively, the period could be based on each individual worker’s start date (which is not recommended as it is very difficult to manage).
Ensure you have a policy in place that includes guidelines for granting holiday requests. This guidance should include how multiple holiday requests are dealt with (for example, ‘first-come-first-served’, asking for volunteers to work, a yearly rota system or random selection). You should state that all employees will be treated equally, but personal circumstances may be considered.
Family commitments should not automatically grant an employee permission to take annual leave, although you may want to take this into account in an attempt to be fair and reasonable to all of your personnel.
Don’t forget that you can refuse a holiday request if there is a genuine business reason to do so such as the need for a piece of work to be done or the premises to be supervised. But you should not refuse holiday as part of any disciplinary action being undertaken, which should be treated as a separate matter.
‘Rolled-up’ holiday pay
Some employers have attempted to comply with the requirement for paid holiday by increasing their workers’ hourly or daily rate of pay and designating a defined amount as holiday pay rather than making a payment when a vacation is taken.
The issue of whether such ‘rolled-up holiday pay’ is lawful was finally determined by the European Court of Justice in the case of Robinson-Steele v RD Retail Services Ltd; Clarke v Frank Staddon Ltd; Caulfield v Hanson Clay Products Ltd  IRLR 386.
The ECJ ruled that rolled-up holiday pay is not lawful in any circumstances and that payment for annual leave must be made at the time holiday is actually taken, irrespective of what is written into employees’ contracts. Any employer that is still using the rolled-up method should, therefore, take active steps to change their policies and discontinue the practice.
Holiday pay and sickness
In the case of Stringer v HM Revenue & Customs  IRLR 214, the ECJ ruled that workers who are off sick (for any length of time) continue to accrue statutory holidays. It is not permitted in any circumstances to deny a worker the right to take the minimum period of statutory annual leave.
The ECJ added that:
– it is lawful for a worker on sick leave to be permitted, if he/she requests it, to take (and be paid for) his or her statutory holidays during a sickness absence period
– it is lawful to prevent a worker on sick leave from taking (and being paid for) his or her statutory holidays during that period only if he or she is given an opportunity to take those holidays at another time once he or she has recovered and returned to work (even if that is not until the next holiday year)
– a worker is entitled to a payment in lieu of statutory holidays if his or her employment is terminated and he or she has not been able to take those holidays due to sickness absence.
In Pereda v Madrid Movilidad SA ECJ Case 277/08, the Court ruled that if a period of sickness absence that occurs as a result of illness or injury overlaps with previously scheduled statutory annual leave, employers must permit their employee, on request, to reschedule the annual leave to another time once he/she has recovered and returned to work.
Such a situation can arise if a worker falls ill or is injured shortly before a period of planned holiday or if they become sick during a holiday period. Employees have the right to take their annual leave at a time other than the one coinciding with the period of sick leave (although the employer can, by giving notice equivalent to twice the length of the period of leave, nominate what the dates of the leave should be).
Holiday pay at termination
Because the first four weeks of statutory annual leave cannot be carried forward to another holiday year, a staff member who leaves their employer is entitled only to the proportion of leave that has been earned during the current holiday year. As a result, it is helpful if their contract states how leave entitlement actually accrues, for example, at the rate of 2.33 days a month.
If an employee has not taken all of his or her holiday entitlement when their employment terminates, employers are under a duty to pay in lieu for this (irrespective of the circumstances of the employee’s termination).
Although payment will normally be due only for untaken holiday leave that accrued during the current holiday year, exceptions are made in cases where sickness absence prevented a worker from taking all of his/her statutory annual leave during the previous year (see Holiday Pay and Sickness above). In this case, employers must pay their staff members in lieu of this untaken leave from the previous holiday year (in addition to any untaken leave in respect of the current holiday year).
Where a worker has taken more holiday than that accrued at the time of the termination of their employment, employers may claw back the overtaken holiday from them. But for an employer to lawfully be able to deduct the sum due from that worker’s final pay packet, his or her prior express permission must have been given, normally as a result of them having signed a contractual agreement containing a clause to that effect.
Amy Paxton is a senior employment consultant at Croner.