Payments of rolled-up holiday pay can be set off against an employee's entitlement to statutory paid holiday even though the precise amount of salary allocated to holiday pay is not identified upfront in an employment contract. The pre-condition for set-off established by the ECJ in 2006 (Robinson-Steele v PD Retail Services), that the arrangements be transparent and comprehensible, had been met where the employee had been told his salary would include rolled-up holiday pay, the amount was calculated according to an established system which could have been explained to the employee had he asked, and the monthly amounts of holiday pay were specified in the payslips. (Lyddon v Englefield Brickwork Ltd, EAT)

The ECJ ruled in 2006 that rolled-up pay is unlawful. Rolled-up payments "already made" could be set off, but Member States were required to take steps to stop such practices. It remains uncertain whether this permits set-off for rolled-up holiday payments only where made prior to the ECJ decision, where made prior to the relevant Member State taking the required steps, or where made prior to the tribunal decision against any particular employer.

The UK Government chose not to amend UK law to reflect the ECJ decision, instead amending its guidance. The current guidance states that by now employers should have discontinued rolled-up holiday pay schemes and that only payments made during the 'transitional period' should be capable of set-off. The guidance does not explain what the transitional period is (eg, is it only the holiday year current at the time of the ECJ ruling?) and in any event tribunals are not bound by the guidance. The EAT judgment in this case did not deal with this timing issue, suggesting that this EAT did not consider the timing of the payments (not specified in the decision) to be critical.

The cautious advice to employers is to take steps to renegotiate contracts to eliminate rolled-up holiday pay as soon as possible. However, the simplicity of these schemes and workplace support for them may lead some employers to continue them, accepting the risk that set-off may be denied should they face tribunal claims. The decision may be determined by an assessment of how likely the particular workforce is to bring claims.