Nick Abbott and Anna Youngs look at the changes to the working time holiday regime in the pipeline, and return to the vexed question of rolled-up holiday pay.

Bank holidays and working time

At present the Working Time Regulations (WTR) entitle workers to a minimum of four weeks’ paid holiday, but these can include bank holidays, as there is no implied right to be paid for these days under the general law. Given that there are eight bank holidays each year, this means that workers with more generous employers enjoy almost two extra weeks of paid holiday. The Government is proposing to address this by amending the WTR so that the minimum paid holiday period is increased to 28 days for full time employees.

The Government will phase in this increase by adding four days to the statutory holiday entitlement from 1 October 2007 and four days from 6 April 2009. If the employer’s holiday year does not coincide with this period a proportionate increase will be applied until the start of the employer’s new holiday year.

Because these extra days are in excess of the minimum entitlement stipulated by the Working Time Directive, workers will be able to agree with their employers to carry forward these extra days into the following holiday year. This is not possible in relation to the core four week entitlement.

Bank holidays and part-time workers

At present part-time workers are not necessarily entitled to be paid anything for bank holidays, even if their full-time counterparts are paid for bank holidays.

It has become common practice for part-time workers to be paid pro rata for bank holidays, so that all part-time workers receive payment in proportion to the hours worked, regardless of the days of the week they normally work. Once bank holidays become part of workers' statutory entitlement, the WTR will deal with pro-rating these extra days for part-timers.

Until the new regulations come in, employers are free to decide what provision they wish to make for bank holidays. A recent appeal case demonstrates that the Part-time Workers Regulations do not necessarily enable part-time workers to claim a pro rata payment, but it remains the safest way of avoiding claims under those regulations.

Rolled-up holiday pay

Last year the European Court of Justice (ECJ) said that employers who paid workers an additional hourly rate to buy out their holiday entitlement were infringing the directive. It did however add that employers who had adopted this practice – known as rolling up holiday pay – could offset the payments made against any holiday entitlement their workers later claimed, provided certain conditions had been met.

As we reported in last summer’s Employment Post, the Department for Trade and Industry (DTI) altered its guidance to reflect the ECJ decision, encouraging employers to renegotiate contracts that provided for rolled-up holiday pay, though pointing out that they could claim credit for payments already made. Since then there have been two further changes to the guidance. The latest edition suggests that employers should have completed renegotiating their contracts by now, but will be able to claim credit for any payments made during the transitional period provided they are made in a "transparent and comprehensible manner". This guidance has no legal status, but represents a pragmatic and relatively cautious interpretation of the ECJ judgment.

Payment while off sick

The question of whether workers are entitled to accrue statutory holiday pay while they are off sick is another long-running working time saga. The House of Lords has referred this and a number of related issues to the ECJ and we are still waiting for its decision. The Government has declined the invitation to clarify the position when it amends the WTR to introduce the additional eight days of holiday.