An employment tribunal has held that payments in lieu of untaken statutory holiday on termination of employment must be calculated to reflect normal pay.

On termination of employment, a worker is entitled to pay in lieu of unused statutory holiday calculated in accordance with either a relevant agreement, such as an employment contract, or if none, such sum as would have been due had the leave been taken using the formula set out in the Working Time Regulations.

The EAT has previously ruled that an employment contract cannot validly specify a payment in lieu of £0. An employment tribunal has now held that specifying a nominal figure such as £1 is equally invalid: contracts must provide for payment in lieu at least equating to what the employee would have received had they taken the holiday. (Podlasiak v Edinburgh Woollen Mill Ltd)

As a first instance decision this is not binding on other tribunals and could be appealed. However, for the time being, employers may wish to reconsider using such contractual provisions for nominal payment and instead ensure employees are paid in lieu at the same rate as if the holiday had been taken.