Holiday pay ruling to hit business

A ruling in the European Court of Justice could force small businesses to rethink the way they pay employees after it said that the practice of giving staff extra holiday pay in lieu of actual time off is illegal.

In a variety of cases where employees ‘received payment for annual leave in the form of remuneration included in the hourly remuneration, a system known as “rolled-up holiday pay”, instead of receiving such payment in respect of a specific period of leave’, the Court ruled that this was contrary to the working time directive and therefore illegal.

The working time directive states that every worker is entitled to paid annual leave of at least four weeks. The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.

‘The decision should make it much more difficult for rogue bosses and employment agencies to cheat staff out of their holiday pay,’ commented TUC General Secretary Brendan Barber. ‘In the past it has been all too easy for employers to say they are paying staff for their holidays without in reality ever coughing up an extra penny. Thanks to union campaigning, up to a million construction workers and agency temps should now start to get the proper holiday entitlement and pay to which they are entitled.’

For rolled-up holiday pay already made to staff, ‘the Court holds that payments made, transparently and comprehensibly, may, as a rule, be set off against the payment for specific leave. On the other hand, such set-off is excluded where there is no transparency or comprehensibility. The burden of proof in that respect is on the employer.’

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Staff Pay