Rolled-up Holiday Pay - Time for Employers to Act

One year after the European Court of Justice (ECJ) ruled that rolled-up statutory holiday pay (RHP) was unlawful, the DTI has amended its own guidance, not only re-iterate this, but also to make it clear that "employers are now required to ensure that payment for statutory annual leave is made at the time when leave is taken".

The DTI had previously stated that, while RHP was considered unlawful and employers should renegotiate contracts involving RHP for existing workers as soon as possible, "where an employer has already given RHP in relation to work undertaken, and the payments have been made in a transparent and comprehensible manner, they can be set off against any future leave payments made at the proper time."

The latest DTI guidance expresses, in essence, the view that employers have had sufficient time to implement proper policy and procedures in relation to RHP and follows the ECJ’s ruling that all Member States must take appropriate measures to ensure that practices that are incompatible with the Working Time Regulations are discontinued.

The situation for employers was that the set-off rule only applied to sums already paid at the date of the judgment, thus providing employers with a defence to back-dated claims, but not to those going forward.

Many employers will have put new RHP systems in place, but for those which have yet to renegotiate with staff, the DTI's change of position prompts immediate action. The risk of claims may be limited, given that RHP is generally used for workers on short-term contracts (who are unlikely to take paid leave), but nevertheless remains real.