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The end of the year is fast approaching, which for many employers means the company holiday year is also drawing to a close. This means taking stock of how much holiday entitlement your workers have yet to use, considering how you will manage any last minute Christmas period requests for time-off and dealing with various other knotty issues.

Below, we address several issues HR teams could face over the coming weeks in relation to annual leave. We foresee that some of these issues might this holiday year be particularly difficult in the light of October’s Supreme Court ruling in Chief Constable of the Police Service of Northern Ireland v Agnew. The Court’s finding that unlawful deductions claims for holiday pay can be brought even where there are gaps of three months or more between a ‘series’ of underpayments has left some employers worried about holiday pay claims. Another finding in the case was that annual leave entitlement (for full-time workers, made up of 20 Working Time Directive (WTD) days, 8 Working Time Regulations (WTR) days and, usually, additional contractual days) should, as a default and unless it is practicable to distinguish between the different types, be treated as a ‘composite pot’. This potentially complicates the position not only on holiday pay but also on other issues such as the ‘use it or lose’ principle and carry over of holidays. Note that we are running a webinar on the implications of this case on 29 November.

What is the correct holiday pay rate for holiday taken at the end of the year?

Some employers pay all holiday pay at the rate of ‘normal remuneration’ (i.e. including things like overtime and relevant bonus/commission payments) and therefore holiday taken at the end of the year is paid at the same rate as all other holiday. However, others pay this higher normal remuneration rate for only the first 20 days of holiday in the holiday year (as normal remuneration is a requirement only for WTD holiday). If you are one of these employers, you may need to think about adjusting your holiday pay rates in light of the new default position, post Agnew, that all holiday forms a ‘composite pot’. This would mean paying at least a fraction (representing the 20 days WTD leave) of every day of holiday taken at the normal remuneration rate. On the other hand, if you are confident that you adequately distinguish between WTD holiday, WTR holiday and additional contractual holiday, and are clear that workers take their WTD holiday first in the holiday year, then you may be able to maintain your lower pay rates for holidays beyond the first 20 days.

We will explore this issue, and potential solutions, in detail in our forthcoming interactive online workshop.

Can staff insist on taking annual leave over Christmas?

Most workers will expect and be able to take time off work for the Christmas bank holidays, although this of course depends on the terms of the employment contract.

In addition to bank holidays, workers often want to take some of their other annual leave over the festive period. There are legal requirements governing how much notice an individual must give to request holiday. There are also rules around an employer’s ability to refuse or postpone holiday. Employers therefore usually have some scope to say no to annual leave requests. However, there may be less wriggle room to refuse a Christmas holiday request if that coincides with the end of your holiday year, particularly if that would result in a worker losing some holiday entitlement. Also note that employers may face more difficulties post Agnew in relation to carry over (see below). 

When deciding whether to agree to a holiday request, managers also need to be mindful of potential discrimination where a worker is specifically asking for the time off on religious grounds. Although employers are not legally obliged to grant requests on these grounds, careful consideration will be needed before refusing such a request. It is good practice, and could avoid allegations of discrimination on the grounds of religion or belief, to accommodate requests for time-off on religious grounds where feasible, and employers should ensure that any such requests are handled in a fair, consistent and sensitive manner.

Can staff be required to work overtime?

For many businesses, the run up to Christmas is the busiest time of year, but is also a time when many workers want to take holiday, meaning all available hands may be required to fulfil key orders and meet operational demands. You may therefore be wondering whether you can compel staff to work overtime over the Christmas period. Again, the answer to this depends on the wording of your contracts of employment.  If a contract expressly provides that a worker must work overtime when required, it will usually be reasonable to take disciplinary action if they refuse to do so. Again, however, it is important to keep in mind possible discrimination risks (as outlined above).

Use it or lose it: do staff have a right to carry over untaken holiday?

As a general principle, workers should be allowed to take their holiday in the year in which it accrues. The legal requirements as to whether any holiday that is untaken at the end of the year can (or occasionally must) be carried over, depend on the type of holiday concerned (i.e. whether it is WTD holiday, WTR holiday or additional contractual holiday).  Prior to the Agnew case, most employers applied these rules on the assumption that WTD holiday was taken first in the year, followed by WTR holiday, and finally any contractual holiday. However, the Supreme Court’s ruling that the default approach is that all holiday forms a “composite pot” has complicated the position on these issues and also on the use of holiday carry over clauses. This makes it more difficult for employers who have not effectively distinguished between the different types of holiday to determine how much holiday workers can carry over. To find out more, come along to our webinar.

Should we agree to requests from staff to attach a period of remote working to the end of their overseas Christmas holiday?

In recent years, many employers have seen an increase in remote working requests from workers who spend their Christmas holiday period overseas and wish to extend this by a period of working from that location. In these circumstances, various issues need to be considered, including from employment, immigration, data privacy, tax and social security and intellectual property perspectives.  Sometimes an employer will require specialist and/or local law advice on these matters.

Where the overseas working arrangement is only expected to last for a short period (for example, a couple of weeks) and the arrangement is generally low risk, some employers take the view that it is not necessary to seek specialist/local law advice.  Nonetheless, it is still worth agreeing with the worker in writing the basis on which the remote working request has been agreed.  In any event, employers should take care to ensure that all requests of this kind are treated in a fair and consistent manner.

Importance of clear communication

The importance of clear and consistent communications with staff in relation to holiday entitlement and pay cannot be overstated. In light of Agnew, it is more important than ever that employers understand the rights attaching to WTD holiday, WTR holiday and additional contractual holiday, whether their organisation distinguishes between these different types of holiday and how their holiday rules operate in practice.

Employment contracts should cover all the main elements of a worker’s holiday entitlement, pay and ability to carry over holiday, and many employers will supplement this with holiday policies and/or other documentation (for example, covering holidays and family leave, holidays and sick leave, etc). Employers should have clear and robust rules setting out how requests for holiday will be handled, and managers should be trained on how practically to apply the holiday rules, including how to manage competing requests for holiday and how to talk to staff about their outstanding entitlements. Managers need to know, for example, what system should be applied for approving leave fairly - first-come-first-served or based on rotating priority?

Taking proactive steps to efficiently manage annual leave should help you comply with legal obligations and maintain workforce morale and wellbeing, while ensuring business continuity during the busy festive period ahead.

How we can help

Our practical, interactive webinar, “Holiday entitlement and pay: Agnew and beyond” (on Wednesday 29 November 2023 at 10am) will tackle key issues relating to holiday entitlement and pay in detail.  Our experienced employment lawyers will help you to understand your legal obligations in relation to calculating employees’ holiday entitlement and pay, including assessing risk areas and identifying action points in light of the Supreme Court’s decision in Agnew. During the session, you will be encouraged to share your experiences and ask questions to ensure you get as much from the webinar as possible.  Click here to book your place

If you are a Make UK subscriber, you can speak to your regular adviser for guidance on your approach to holidays. Make UK can also assist with defending claims for underpaid holiday pay and engaging with employees and trade unions to address any employee relations issues in this area (please email us for further information).

If you are not a Make UK subscriber, our expert HR and legal advisers can offer guidance on a consultancy basis. For further information, contact us on 0808 168 5874 or email [email protected].

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