Welcome to the first in a series of blogs covering global employment law issues. Each month we will be sending you information about key employment law topics from our offices across the globe. The first of our topics is:

Holiday Pay – What Are Your Minimum Legal Requirements?

United Kingdom

In the United Kingdom, all workers are entitled to 5.6 weeks’ paid annual leave each year. A worker is either an employee or someone who contracts to perform work personally, but who cannot be regarded as genuinely self-employed (usually, a casual worker would be caught by this definition). If a worker works a standard five-day week, this means that he or she will be entitled to 28 days’ paid leave per year. This total includes public holidays. Workers who work a different number of days per week will have their entitlement adjusted accordingly.

Workers must be paid for their holidays as and when they take them. Employers should not pay a supplement to workers’ normal wages to cover holiday pay (known as rolled-up holiday pay) and not pay when holidays are actually taken. Nor can employers pay workers in lieu of holidays, except on termination of employment. A great deal of controversy has arisen recently as to how to calculate holiday pay. Traditionally, employers have paid only basic salary while workers are on holiday. However, recent decisions of the Court of Justice of the European Union and the UK Employment Appeal Tribunal (see our blogs here and here) mean that, in the future, any sums workers earn by way of commission and overtime may need to be included when calculating holiday pay. This could substantially increase the cost to employers of workers’ holidays.

United States

In the United States, there is no federal law that entitles employees to vacation, paid or unpaid. Several states regulate voluntary payment for vacation, however. For instance, in Massachusetts, if an employer chooses to provide its employees with paid leave, that paid time off is considered wages; thus, withholding vacation payment is tantamount to illegally withholding wages. Similar laws govern paid vacation policies in California and a number of other states. Employees in those states must be paid for any accrued but unused vacation time upon termination of employment.

A variety of states provide for vacation time for public employees, but no state requires a private employer to offer vacation time. All laws regarding pay for unused leave apply only to employers who voluntarily offer paid time off. Therefore, if the employer does not offer paid leave, employees need not be paid for any unused time off.

France

In France all workers are entitled to five weeks’ paid annual leave. Saturday is a business day in France, and workers accrue 2.5 business days of annual leave per month of work, which amounts to a total of 30 days of annual leave (i.e., five weeks under the French system).

This total excludes public holidays, of which there are 11 per year, and rest days (what is called in France “jours RTT”), which may be granted where employees have worked more than 35 hours per week.

Holiday pay must be calculated according to whichever of the following options is the most favourable to the employee:

  • One-tenth of the total gross salary received by the employee within the “reference year” (i.e., from 1 June to 31 May); or
  • The same salary as if the employee had been working

Germany

In Germany, employees’ minimum paid annual leave entitlements depend on their usual number of working days per week. Paid annual leave amounts to at least 20 days in the case of employees working a five-day week, or 24 days for employees who work six days per week. In practice, employees’ actual vacation entitlements (based on employment contracts or the provisions of collective bargaining agreements) are much higher and regularly amount to 26 to 30 days per year for employees with a five-day working week.

As in the UK, a supplement or vacation bonus is not required in addition to the normal salary paid when the employee takes holiday. Also like in the UK, employers cannot pay employees in lieu of holidays, except on termination of employment. In a continuing employment relationship, holiday claims expire at the latest on 31 March of the year following the calendar year to which the holiday entitlement relates.

Recently in Germany, the question of forfeiture of holidays in cases where an employee was incapable of working during the entire calendar year received significant attention. Pursuant to several decisions of the Court of Justice of the European Union and the German Federal Labour Court, vacation claims of sick employees will not be forfeited sooner than the expiry of 15 months after the vacation year’s end. Well-drafted vacation clauses in employment contracts can avoid the extensive accumulation of vacation claims of employees on long-term sick leave. A review of contract templates can therefore help an employer improve its position.

Hong Kong

In Hong Kong, the Employment Ordinance (Cap. 57) (the “EO”) only grants paid annual leave to employees who have been employed for not less than 12 months (this is called “statutory annual leave”). The number of days granted depends on the employee’s number of years’ service. For example, an employee who has been working for at least one year, but less than three years, will be granted seven days of annual leave.

The preferred approach taken by many Hong Kong employers is to provide in the employment agreement an agreed number of annual leave days (this is called “contractual annual leave”). Since statutory annual leave is an employee’s minimum entitlement, contractual annual leave must exceed statutory annual leave.

Employers cannot pay employees in lieu of annual leave, except on termination of employment. However, the EO allows an employee to choose to accept payment in lieu of that part of his/her leave entitlement that exceeds 10 days. For example, an employee who is entitled to 12 days' annual leave can take 10 days' leave and accept payment of the equivalent wages for the two days' leave.

The daily rate of annual leave pay is the average daily wages earned by the employee in the 12 months preceding the annual leave (or the shorter period if he/she was employed for less than 12 months). “Wages” should not be taken to mean basic salary only, as the EO has defined it to include, inter alia, commission, overtime pay, tips and service charges.