Holiday pay

2020 Vision

As we go into peak holiday season, next year might seem like a long way off, but there are some key employment law changes which will come into force in April 2020 that businesses should be planning for now.

Three key reforms relating to holiday pay, off payroll labour and written particulars are outlined below along with some really good advice on what businesses should be doing.

New reference period rules for calculating holiday pay
The reference period used to calculate holiday pay for workers with variable pay is changing on 6th April 2020.

Ever since the European Court of Justice ruled that holiday pay must take into account ‘normal remuneration’ such as contractual or regular patterns of overtime, pay allowances and certain commission payments, the 12 week reference period has been difficult. Fluctuations in pay can lead to higher holiday pay if leave is taken immediately following peaks and lower holiday pay if it is taken following troughs.

Currently, it is pay that a worker receives during the 12 weeks worked prior to taking a holiday. But as of 6th April 2020, the reference period will be changed to 52 weeks, or the number of weeks of employment if a worker has been employed for less than 52 weeks.

With regards to holiday pay, many firms begin their year on 1st January. If that is the case in your business, you need to decide whether to change the way you calculate holiday pay on 6th April, or at the start of your holiday year.

Of course, Christmas can bring high levels of overtime in some sectors and this could have repercussions on holiday pay if you decide to move to the new system in January. It could also mean that people who work the same hours receive different holiday pay, simply because of the dates that they take leave. If your financial year ends after 6th April, the value of accrued but untaken holiday will increase, meaning you may wish to limit how much holiday can be carried forward.

In some situations, the 52 week reference period will need to be altered. However, the good news is that employers do not have to look back any more than 104 weeks prior to the holiday.

You should review your variable pay policy, if you have not started to include variable pay in your holiday pay, now is probably a good time to do so. If you decide to tackle this, it is important to assess what pay components you will cover and whether this could trigger claims for backdated holiday pay.

Changes to the tax treatment of off-payroll labour
From 6th April 2020, changes to tax legislation regulating off-payroll working (IR35) also come into effect.

These new rules will require larger private sector businesses to deduct income tax and National Insurance contributions via payroll from fees for services paid to a personal service company (PSC). This is where the individual performing the services would, but for the PSC, ordinarily be regarded as an employee of the ‘client company’ for tax purposes.

The treatment of individuals who are directly engaged by the client company, for example ‘John Smith’ rather than ‘John Smith Limited’, remains the same. The correct tax treatment of the fees paid to these workers will depend on whether they are an employee of the client company for tax purposes, or if they genuinely are self-employed.

At present, the tax liability rests with the PSC. The change will be accompanied by obligations on the client company to determine the correct position for each engagement and notify the other parties involved. It pays to be prepared for this reform; when similar changes were introduced in the public sector two years ago, many organisations were caught out.

It is a good idea to start doing this as soon as possible because the audit process could take some time. It is likely you will need to make individual decisions and have different communications with each PSC.

The audit will be a factual investigation, looking at what each individual does in practice, how they do it, what contracts they’re engaged under and how they are paid and so forth. This may also be a good time to audit any off-payroll labour that is not provided through a PSC.

The audit is likely to have knock on consequences that may require legal advice.
As well as determining employment status, you may need legal advice to amend or draft contractual documentation, to advise on the effects on pension liability, and to consider how this change works with rules around immigration, the apprenticeship levy and with gender pay gap reporting. In addition, if liabilities are identified or a revised model of working is required, your accountant may be needed to quantify the position.

Written particulars becoming a ‘day one right’ for workers and employees
The requirement to give written particulars will be altered in the following 3 key ways:

  1. It will become a ‘day one right’ for those employed after 6th April 2020.
  2. It will cover workers as well as employees.
  3. It will need to cover additional topics, such as probationary periods, any variation in working hours, and ‘any other benefit provided by the employer’.

Begin by revisiting all contracts used to engage employees and workers in readiness for new starters arriving after 6th April 2020. Most of the new areas are straightforward but some thought will need to be given to areas that are more complex.

If your workforce includes flexible working patterns, such as shift workers or zero hours workers, you will need to consider how your approach might vary and you should build this into your terms.

To cater for the ‘any other benefit’ requirement, you will need to decide what types of benefits should be covered and their contractual status.


At first sight, these legal reforms may seem fairly minor, however they do mean that you will need to review key processes and possibly make important changes that will have legal and financial consequences.

As ever with employment law issues, preparation is key. Organisations that start work on these changes now will be in a good position going into 2020. We hope that this article is useful and that it provides clear advice on what you need to do now.

Of course, Borders Employment Law can provide all the help and assistance that you need to make sure you are fully prepared and compliant with the changes.

Holidays at home and away

The British workforce may feel like they are totally overworked but in fact employers in the UK offer more paid holidays than almost anywhere else in the world.

UK statutory paid leave of 28 days a year is beaten only by France’s 30 and we are famously miles ahead of the United States, where workers are not legally entitled to a single day of paid holiday leave!

Before we get too carried away, however, there is a catch. When paid public holidays are factored in to the equation, we slip back to tenth, behind the likes of Austria, Spain and Italy. This analysis is based on working an average five-day week and on the whole, the UK was found to come second with 28 days of statutory annual leave. Prior to 2009 there was just a 20-day holiday entitlement, based on European legislation, but this was increased to incorporate eight bank holidays to tackle the failure by many employers to pay staff for these days.

Although the total of 28 days’ leave is lower than other countries when their respective public holidays are included, the UK figure is still considered favourably because workers can choose to work on public holidays and take the days off in lieu at a later date. This means they can add them together and use them to go away on holiday, which workers in several other countries cannot do.

Once public holidays are included, France is overtaken by Austria and Portugal, which have 13 public holidays to add to 22 days of statutory annual leave, giving a total of 35 days. Spain is next with 12 public holidays on top of 22 days’ leave and Italy, Belgium, Germany, New Zealand and Ireland also overtake the UK once paid public holidays are included. Surprisingly, however, the Scandinavian countries of Denmark, Finland and Sweden have no guaranteed paid public holidays on top of their 25 days of statutory annual leave.

And as we mentioned in the introduction, the law in the US offers our American cousins no guaranteed paid leave at all, although workers are given ten days for holidays such as Christmas and Thanksgiving. There is no guarantee they will be paid on these occasions, but thankfully, most employers do offer their staff paid annual leave – however this is typically limited to just two weeks!

As an employer here in the UK, you must comply with your legal obligations regarding employees’ working hours and time off. If you fail to do so, this could lead to lead to claims from employees, enforcement action or even prosecution. Of course by giving your employees fair holidays and work breaks you help to improve workplace performance, reduce the number of accidents and cut unauthorised absenteeism. As we have investigated in a previous blog article, you are also legally required to consider requests from most employees for flexible working patterns.

The Working Time Regulations set requirements for employees’ holidays, working hours and rest breaks. The regulations are designed to help protect employees’ health, safety and welfare in line with the EU Working Time Directive.

Holiday entitlement
The statutory entitlement of 5.6 weeks, or 28 days, applies to all employees and the right to paid leave begins to accrue as soon as an employee starts working for you. This applies pro rata to part-time workers: for example, an employee working two days a week has an annual leave entitlement of 11.2 days. The holiday entitlement can include public holidays such as bank holidays.  If an employee leaves your employment and hasn’t taken their accrued holiday entitlement for the year, or part year, then they are entitled to be paid for those accrued but untaken holidays and termination of their employment.

How many holidays?
•    Most workers are legally entitled to 5.6 weeks paid holiday per year (this is known as statutory entitlement).
•    Part time worker are entitled to the same amount of holiday (pro rota) as full time colleagues.

•    Employers can set the times when workers can take their leave, e.g. a Christmas shut down.
•    If employment ends workers have the right to be paid for any leave due but not taken.
•    There is no legal right to paid public holidays.
Once an employee starts work, details of holidays and holiday pay entitlement should be found in the employee’s written contract or a written statement of employment should be given to employees by their employer.

The summer holiday period can be a busy time for managing annual leave requests. With parents juggling childcare with work and school holidays and employers trying to run a business at a busy time of year when the weather is good, it can be really difficult balancing everyone’s needs.

As an employer, you may struggle to grant all of your employees the leave that they have asked for at popular holiday times, whilst still meeting your business needs at the same time. Here are some of the issues that you might be faced with and our advice on how to handle them.

Can someone take a 3 week holiday during the school break?
As long as the employer agrees to the request then yes, you can look at the levels of staff off at any one time and you may agree to someone taking three weeks leave. You can also refuse this request if too many people are off. The best idea is to have a clear policy regarding when leave can be taken, and how many people can be off at any one time but you should be consistent with all staff when considering such requests.

Can an annual leave request be refused?
Employees have the right to statutory annual leave but the employer can say when leave can or cannot be taken. Some organisations have shutdowns when employees have to take leave, others may stop people taking leave at certain times of the year during busy periods. If you consistently have a conflict with the same people needing to take time off at the same time each year you could consider introducing a rota system allowing alternating years.  As with all such policies, however, make sure you apply it consistently and fairly.

Does someone have a right to take time off if childminding arrangements break down?
The legal right is to reasonable ‘time off for dependants’, which gives employees time off to deal with emergencies. This would be unpaid and would normally be expected to last for one or two days (or what is considered reasonable) so that other arrangements can be put in place. You may suggest the use of annual leave or special leave which you may give with pay.

Can a flexible working request cover just the school summer holidays?
Yes, if your business can accommodate that. If a request for flexible working is made, you will need to agree a new work pattern and once agreed this will make a permanent change to the terms and conditions of employment. In the case of agreeing summer ‘off’ that would be a material change to the contract but the continuity of employment would be preserved. Any other arrangements for just a temporary change to work patterns may be negotiated between employer and employee.

Are employees entitled to pay if unable to get to work because of a travel delay?
There is no legal right for staff to be paid by an employer for travel delays. However, employers may have contractual, collective or custom and practice arrangements in place for this. Discretionary payment for travel disruption might also be used.

I hope that you have found this article on holiday entitlement both interesting and informative and that it provides you with useful guidance. Ultimately when it comes to holidays in the workplace, you must comply with your legal obligations regarding employees’ working hours and time off but as well as this we would recommend that you have a clear holiday policy within your employees’ contracts which states what their holiday entitlement is and what is and what is not an acceptable request.



Commission on holiday pay?

In addition to current legislation, several recent court judgments should be considered when calculating holiday pay.
This means that the rules employers should follow when it comes to calculating holiday pay may need to be updated, in particular with regards to commission being factored in to statutory holiday pay calculations.

Commission is usually an amount of money a worker receives as a result of making sales and can make up some or all of their earnings.

Commission must be factored into holiday payments for the 4 weeks of statutory annual leave required under European law. There is no requirement to do this for the additional 1.6 weeks of statutory annual leave provided under UK law, or for any additional contractual annual leave allowance. This was confirmed on the 22nd May 2014 when the European Court of Justice heard the case of Lock v British Gas Trading Ltd.

A summary of the case
In the case of Lock v British Gas Trading Limited, Mr Lock (a sales consultant for British Gas) received a basic salary plus commission on the sales that he achieved.  The commission was a significant element of his overall pay at 60%.

During his leave, Mr Lock was paid his basic salary plus the commission from previous sales that fell due during the period. However, he did not receive commission for the period during which he was on leave and would therefore lose income in the future by taking leave.

The European Court of Justice firstly considered whether Member States of the EU must take measures to ensure that a workers holiday pay accounts for commission payments and secondly how such holiday pay would be calculated. In answering the first question, the Court held that Mr Lock’s commission was ‘intrinsically linked’ to the performance of the tasks required under his contract and therefore his statutory holiday pay should include an amount to reflect the commission he would have earned had he not taken leave. However, the court did not provide any specific guidance on how holiday pay should be calculated and this will need to be determined by national courts or tribunals within particular member countries.

The Lock v British Gas Trading Ltd case was referred back to the UK Employment Tribunal to consider how commission is calculated into holiday pay for that particular case. A preliminary hearing was held in February 2015 questioning whether the Working Time Regulations themselves could be read in line with the European judgment. The Employment Tribunal judgment, which was also confirmed by the Employment Appeal Tribunal on 22nd February 2016, said that it could be. However, this ruling may still be subject to a further appeal.

This means that at present, there is no definitive legal answer about how such holiday pay calculations must be made or how and indeed if claims can be backdated. We will have to wait to see how UK courts and tribunals interpret this and other decisions to establish the full implications for employers and employees alike, however it is likely that significant change will result.

We will be watching this decision with interest in the coming weeks and months. But in the meantime we can help you review shift patterns and leave arrangements to establish if changes need to be made to contracts to mitigate any historic or future risk for your organisation.