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Holiday Pay: What is Rolled Up Holiday Pay?

It is common practice for employers to pay employees on zero-hour contracts and some seasonal workers for their holiday rather than giving them allocated paid holiday time.This normally takes the form of payments on a monthly basis so that the accrued holiday entitlement is calculated at the end of the month and included with normal wages or is included as a ‘top up’ to the employee’s hourly rate.

Rolled up holiday has been declared by the European Court as contrary to the working time directive which is the European Law that governs our application of rules about holiday which is set out in the UK in the Working Time Regulations.

Whilst the European Court has said that it is unlawful to pay rolled up holiday pay, it is still possible to pay rolled up holiday pay under a transparent and comprehensive arrangement which will offset any claim for holiday pay made by an employee.

Despite various judgements of the European Court there has been no change to UK legislation to expressly make rolled up pay unlawful, however guidance was issued by the government stating that holiday pay should be paid when leave is taken.

It is therefore easy to see why it can be confusing to work out whether or not you should pay ‘rolled up holiday pay’. I accept that in genuine ‘zero hours or casual contracts’ it makes sense from a management and administrative perspective to pay rolled up holiday pay. If someone is genuinely casual, seasonal or filling in on an ad-hoc basis it doesn’t really make sense for them to ‘take’ their few hours accrued holiday when they are not actually working on a regular basis so it makes it easier all round.

However, I have come across several situations where employers are using rolled up holiday pay for employees who are essentially working full time on a permanent basis. Aside from the risks (which I set out below), you could also find that you end up paying more than you need to by paying them accrued holiday pay each month.

I recommend that you try to steer clear of paying rolled up holiday pay for the following reasons:

1) You may discourage employees from taking rest periods from work.

The purpose of a legal requirement to provide holiday and holiday pay is to ensure that employees have regular rest breaks away from work.

Even if an employee is receiving the payment for holiday as an addition to their monthly salary, they will still view any ‘holiday time’ away from work as being unpaid and will be discouraged from taking leave.

In the event that an employee becomes overworked, ill or has a breakdown because of work and their failure to have a rest period, the fact that you pay rolled up holiday pay and have not ensured that your employees are taking regular rest breaks will go against you.

2) Even though you are paying for holiday you may not be paying the correct amount.

In the event that you have failed to calculate the payments correctly or there is a change in the employees circumstances you could find yourself with a claim for the unpaid amounts. You may also find that you could be paying more than you need to!

3) Uncertainty regarding potential claims or complaints.

You could still find yourself facing a complaint from employees especially if they become disgruntled about something else.

If an employee makes a claim against you for something else, for example, unfair dismissal, then inevitably they will include this as an example of what a ‘terrible employer’ you are. The last thing you want to be doing is explaining to the Tribunal why you are still paying rolled up holiday pay, in addition to defending a claim for unfair dismissal.

4) It is not good practice

If you want to attract good people to work for you then it is important to think about how this will affect the employees and a potential new employee’s desire to work for you verses your competitor.

Please feel free to leave a comment, question or observation below. Alternatively get in touch directly:

This article was written and researched by Alison Colley, Solicitor and Director at Real Employment Law Advice.

 Don’t forget getting advice from a Solicitor does not have to be complicated or costly!

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The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.

The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.

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