Rolled up holiday pay is one of the more ‘frequently asked questions’ we receive here at Exchequer and so we thought we’d go over it in more detail…
What is it?
Rolled up holiday pay is where the individual worker is paid for their holidays in advance of the holiday being taken, with an amount included in their weekly wage. This is traditionally calculated at 12.07% of the worker’s Gross Pay for the week. The individual would not then receive any pay when they are actually on holiday.
Is it lawful?
The area of rolled up holiday pay was subject to much court time in the early 2000’s and ultimately reached the European Court of Justice. The final decision was made in the case of Robinson-Steele v PD Retail Services where the Advocate General was of the view that the practice could be lawful if the process is completely transparent, and the holiday pay element is clearly identifiable on the payslips provided to the individuals. The ECJ declined to follow the advice of Advocate General and held that the practice of paying rolled up holiday pay is prohibited by the Working Time Directive.
So, the practical position is that rolled up holiday pay is technically unlawful, however it is accepted that the sums paid transparently to an individual via this method, can be set off against any claim received for unpaid holiday pay. Therefore, the practice remains relatively commonplace and popular in the temporary recruitment/umbrella sector.
What are the pros and cons for employees?
The main negative for any individual being paid via this method is that they are disincentivised to take time off and of course they may spend rather than save the holiday element of their pay.
That being said, the main advantage is that the individual will always receive the monies they are due, and it prevents the practice that some unscrupulous employers use of retaining but never paying out holiday pay. It also allows the individual to easily take holidays at a time to suit them, i.e. when work is sparse.
Interestingly, the government is currently consulting on this area and proposing to make rolled up holiday pay lawful which will of course end the discussion.