Commenting on the research, Melanie Stancliffe, partner at law firm Irwin Mitchell, told Recruiter one mechanism employers have historically turned to in order to pay holiday pay is ‘rolling up’ pay – a practice that is no longer lawful.
“What used to happen is because people’s hourly or weekly pay would vary, employers would ‘roll up’ and add a 13.6% per year and add it into the individual’s salary over that year,’ she explained, ‘so instead of paying them holiday when they took it, they rolled up the pay to build a holiday payment but they paid it on a monthly basis with the salary.
That can’t happen now. It has to be calculated and paid at the time the individual takes the leave and it has to replicate their normal weekly pay at that time. She gave an example of a placement at a high-end retail store: “They’ve done Christmas, sales, and then they take a week off; that pay has to represent the normal pay that they’ve averaged over those 12 weeks.
It can’t just be “we’ll pay you a flat salary per the black & white in the contract”. Clare Gilroy-Scott, partner at law firm Goodman Derrick, explains rolled-up pay was ruled unlawful by the European Court of Justice in the 2006 ‘Robinson-Steele’ case as a deterrent to the actual taking of holiday, but the ECJ indicated that an employer may set-off holiday pay already paid to a worker under a ‘transparent and comprehensible’ rolled-up holiday pay arrangement.
“Government guidance is clear that contracts, which still include rolled-up holiday pay, should be re-negotiated, but rolled-up holiday pay is still widely used with agency and casual workers“ indeed, it is sometimes preferred by the worker. A transparent arrangement would include itemising holiday pay on a payslip (separate to hourly rate) and providing clear information to the worker about the payment and calculation of holiday pay in writing prior to commencement of work.
“There is some doubt as to whether the ‘set off’ principle can still be applied and businesses still operating rolled-up holiday pay run the risk of paying twice for workers’ holiday should the rule be strictly interpreted and limited only to those arrangements in place at the time (the last reported case being in 2007).”
Meanwhile Stephen Jennings, partner solicitor at Tozers Solicitors, told Recruiter agencies face severe penalties for breaking the rules. “Failure to provide holiday pay could lead to a claim for unlawful deduction from wages, under the Working Time Regulations or for breach of contract. There are technical differences but the principal remedy in each case is the payment the worker should have received.
“Employment tribunals can determine the details that should have been included in a pay slip, if one has not been provided or a pay slip is non-compliant. The main significance of this is that this would be the starting point for a further award (eg. if an unlawful deduction from wages has been made).
It is fair to say that workers are more likely to look closely at the sums they have been paid if they have to fight to get a pay slip, so failure to provide one could lead to various other issues being raised and other challenges being made.
“These claims can be tricky and time-consuming to deal with, as well as having reputational repercussions. As always, complying with the law from the outset is best.” And Andrea London, partner and head of the employment team at law firm Fletcher Day, told Recruiter penalties for getting it wrong are not much of a deterrent and are heavily reliant on workers bringing cases to tribunal.
“Even then, the awards for such failures are only compensatory and not punitive – they are intended to recompense the worker, not punish the employer. Unfortunately, also, the risk of formal action is low since those most affected [according to the above study] are under 25s or 65+, who also happen to be the groups least likely to realise their rights.
“A further enforcement issue is that different organisations are responsible for different areas of labour entitlement non-compliance – and their ability to penalise offenders is very limited. The main two bodies responsible for labour market enforcement are: HMRC, which covers non-compliance with NMW; and the Employment Agencies Standards Inspectorate (EAS) with oversight of all employment agencies.
“Enforcement varies depending on the nature of non-compliance. HMRC penalties can be up to 200% of arrears of underpayment, or a maximum Â£20k per worker, and the EAS can, at worst, prevent an individual running an employment business for up to 10 years, due to misconduct or unsuitability.
They can both ‘name and shame’ offending employers who are found to be in breach and publicise the enforcement to which they are subject – but in practice his happens only rarely and in the most serious of cases.”
This article was written by Graham Simons and first published by Recruiter on 17 September 2019.
For further advice, or to discuss your case, please contact Andrea London.