To pay or not to pay rolled up holiday pay

“We pay our casual workers rolled up holiday pay, although on the payslips it is shown separately as an hourly rate and a holiday pay payment.  We have been told by one of our casuals that we are doing this illegally. Whilst the government and ACAS recommend we don’t do it this way, citizens advice say it is legal if the employer does it clearly, i.e. showing the two payments separately. Do you have a view on this?”

Unfortunately, what you propose is not in accordance with the Working Time Regulations 1998 (‘the Regulations’) and there is somewhat of a grey area in case law as to whether it is lawful or not.  The reason it is ‘unlawful’ is because holiday should only be paid when an employee takes a period of leave.  If they are paid, but don’t take the leave, that would only be lawful on termination of employment i.e. when you are paying accrued yet untaken leave.  It also defeats the objective of the Regulations, which are to ensure workers take holiday. The guidance from Government is also to stop the practice of rolled-up holiday pay and to renegotiate contracts to remove this custom.

The practice of making rolled-up holiday payments could also mean workers are not paid the correct amount of holiday pay, particularly if they work irregular hours; as it tends to be paid on an average for the whole annual leave year, when such category of workers (i.e. casuals with irregular hours) should be paid an average based on the 12 working weeks prior to taking that period of annual leave.

However, if the worker is agreeable then you can proceed commercially because arguably if the worker is agreeable to it then they wouldn’t raise any issues once the pattern is in place.  You would need to itemise the payslip accordingly, as you intend, to show the payment.

NB on the matter of itemised payslips, new legislation comes into force next year (6th April 2019) requiring payslips to show the number of hours being paid where wages vary according to the time worked. This can be either as an aggregate number of hours, or separate figures for different types of work/rate of pay. [The Employment Rights Act 1996 (Itemised Pay Statement) (Amendment) Order 2018.]

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