Rolled up holiday pay is the practice of not paying holiday pay at the time when the employee is on holiday, but making an additional payment during the weeks that the employee works, representing pay due in respect of the holiday. The use of rolled up holiday pay generally applies in relation to casual workers who historically were not given paid holiday. Following the introduction of the Working Time Regulations, for these employees, employers claimed that the existing basic rate of pay included pay in respect of that annual leave. However, it has been argued that the practice of rolling up holiday pay is contrary to the Working Time Regulations and the Working Time Directive as it deters workers from taking holiday.

There have been a number of cases which have challenged whether rolled up holiday pay is lawful under the Working Time Regulations. On 16 March 2006, the European Court of Justice (ECJ) decided in the case of Robinson-Steele v PD Retail Services (joined with Caulfield v Hanson Clay Products Limited (formerly Marshalls Clay Products Limited) 2006 IRLR), that under the Working Time Directive, workers must be paid for annual leave at the time they take it. The ECJ said that member states must take appropriate measures to ensure that practices that are incompatible with the Working Time Directive are not continued. However, the ECJ also held that the Working Time Directive does not preclude sums which are paid transparently and comprehensively as rolled up holiday pay being set off against the payment due for specific leave which is actually taken by a worker. It has therefore been unclear to employers since the decision as to what an employer should do. Since the DBERR announced it would be not be making any changes to the Working Time Regulations, it has amended its non statutory guidance. In March 2007, the DBERR has amended its guidance as follows:

“Following an ECJ judgment on 16 March 2006, rolled up holiday pay (RHP) is considered unlawful and employers are now required to ensure that payment for statutory annual leave is made at the time when leave is taken.”

The DBERR had therefore given employers a period of one year to put in place arrangements to pay employees holiday at the time they take it. In June 2007 an additional paragraph was added which stated that:

“Employers should have taken steps to renegotiate contracts involving RHP to eliminate the practice. Any payments in respect of annual leave, additional to wages or salary made during this transitional period in a transparent and comprehensible manner, may be offset against any future liability to make payment in respect of annual leave, to avoid any over payment of holiday pay.”

It is therefore advisable for employers to ensure that they establish new rules to avoid the payment of rolled up holiday pay. However calculating a holiday entitlement for casual workers is difficult and many employers continue to struggle with how to calculate the holiday entitlement