Hello, my name is XXXXX XXXXX it is my pleasure to assist you with your question today. Will you still allow them to take their accrued holidays?
Ok I understand. The issue of rolled-up holiday pay has been problematic ever since the Working Time Regulations 1998 came into force.
After several UK decisions on the lawfulness or otherwise of rolled-up holiday pay, the ECJ, in Robinson-Steele v PD Retail Services and other cases ruled that the practice is contrary to the Directive. However, it also held that sums already paid under a transparent rolled-up arrangement could be offset against a claim for unpaid holiday pay.
A number of claims in the UK courts challenged whether rolled-up holiday pay was lawful under the WTR 1998. In Caulfield, later followed by the EAT in Smith v A J Morrisroes, the EAT held that it was possible to roll up holiday pay provided that:
• It was clearly incorporated into the contract and expressly agreed to by the worker.
• The allocation of pay to holiday was clearly identified in the contract and preferably also on the worker's pay slip.
• It was a true addition to the basic rate of pay.
• Reasonably practicable steps were taken to require workers to take their holiday.
• Records of holiday were kept.
In the ECJ case, The Advocate General was of the view that rolled-up holiday pay arrangements could be lawful if they were transparent, involved an identifiable addition to basic pay (not merely a retrospective apportionment of existing pay), and there were adequate arrangements in place to ensure that workers could actually take their holiday.
The UK Government has no specific law or guidance in relation to the above developments and the guidance on Directgov states: "Holiday pay should be paid for the time when you actually take your holiday. Your employer cannot include an amount for holiday pay in your hourly rate (called 'rolled-up holiday pay'). If your current contract still includes rolled-up pay, you and your employer should renegotiate it."
So it is somewhat of a grey area and there are arguments that for both it being legal and illegal – it means that if you do introduce this, it could be challenged and you are then getting into a complex legal situation where you have to try and argue it was a valid practice.
Please let me know if this has answered your original question or if you need me to clarify anything else for you in relation to this? Thanks