Updates to holiday entitlement and pay legislation

Verity Buckingham provides new details on how businesses should handle employees’ annual leave during the coronavirus pandemic

Updates to holiday entitlement and pay legislation

Most workers have a right to a minimum of 5.6 weeks' paid annual leave under the Working Time Regulations 1998 (WTR). This amounts to 28 days for a full-time employee. Under the WTR, this can include the usual public holidays – eight in England. Many employers give an enhanced entitlement in employees' contracts. 

Can employees ask to take holiday to avoid taking a period of leave on less or no pay?

Workers may wish to take annual leave as an alternative to scenarios where they would otherwise be on statutory sick pay or nil pay. However, this may not be the case if the employee will be furloughed under the coronavirus job retention scheme, where an employee could receive 80 per cent of their salary while they are off work. 

Employers can also designate a period of annual leave for their employees. They may do this to avoid a situation where lots of their staff want to take holiday once the crisis has passed. Such employees just need to be given the required level of notice by their employer. The amount of notice is double the amount of leave that is to be taken. 

If an employee is ill when they are on holiday, can they reschedule that holiday time?

This position has been decided by case law. The courts have held that a worker who is ill should be entitled to reschedule their annual leave, if they wish to do so. There is no reason this approach should not also apply to a person who is in self-isolation.

If a worker is subject to self-isolation because they have Covid-19, or its symptoms, then they would be treated in the same way as any other worker who is absent because of ill-health. The position is not so clear if they are self-isolating in other circumstances; for example, because they live with someone who has the virus. However, it is arguable that an employee self-isolating in these circumstances is not able to enjoy their annual leave and should be entitled to reschedule at least four weeks' leave. 

As the coronavirus situation changes daily and the government continues to introduce new guidance, employers should take advice on the current situation before making any decisions.

Can annual leave be carried over?

The government has announced that it is allowing workers to carry over up to four weeks' (not 5.6 weeks) annual leave into the next two leave years where leave has not been taken because of Covid-19. The WTR amending regulations have been brought into force with immediate effect.

Until now, the WTR provided that the four weeks of leave deriving from the Working Time Directive could only be taken in the leave year in respect of which it is due. The amending regulations provide that where it was ‘not reasonably practicable’ for a worker to take some or all of the Working Time Directive leave as a result of the effects of Covid-19, the worker shall be entitled to carry forward such untaken leave. 

The change is aimed at allowing businesses under particular pressure from the effects of coronavirus the flexibility to better manage their workforce, while protecting workers’ right to paid holiday.

Changes to calculating holiday pay

On 6 April 2020 a change to calculating holiday pay was introduced. The reference period used in holiday pay calculations increased from 12 weeks to 52 weeks. 

Because of this change, the government has updated its guidance on calculating statutory holiday pay for workers without fixed hours or pay. The aim of the change is to ensure that workers who do not have a regular working pattern throughout the year are not disadvantaged by having to take their holiday at a quiet time of the year when their weekly pay might be lower. 

However, for those workers that work part of a year – for example, term-time workers – a different approach needs to be taken following the Court of Appeal's recent decision in Harpur Trust v Brazel. This case held that holiday entitlement for part-year workers is not subject to a pro rata reduction. 

Ms Brazel was a permanent, term-time only music teacher. The school at which she worked had adopted a calculation for holiday pay that averaged working hours across a year and paid her holiday pay equal to 12.07 per cent of annual pay. 12.07 per cent of pay is equal to pay for 5.6 weeks, divided by 46.4 weeks (the balance of the year after the deduction of 5.6 weeks leave). The school calculated her earnings each term and paid her 12.07 per cent of that figure at the end of the Christmas, Easter and summer terms. She then took her holiday during school holidays. 

If the statutory test of averaging earnings over a 12-week period was applied, Brazel would have received a higher amount of pay, stated in the judgment to be 17.5 per cent of her annual earnings. The Court of Appeal saw no reason for this approach not to be taken. 

For employers, this means that if they are using the 12.07 per cent calculation and this is not consistent with the result from calculating average pay over the reference period, the employee will look to their employer to compensate them for the balance. 

In light of this statutory change to the reference period for calculating holiday pay, and the new case law for term-time workers and those who are only paid for hours actually worked, employers should review the approach they take to calculating holiday pay. 

Verity Buckingham is senior associate at Dentons