Working time: rolled-up holiday pay scenario
Situation
Sam is 19 and a student at university. In her spare time, she works as a waitress in a nightclub. She works irregular shifts and cannot always spare the time to work because of course commitments. Likewise there are occasions when the nightclub does not require Sam to work because it has sufficient staff. The nightclub has a large number of workers in Sam's situation who work shifts as agreed with the nightclub.
Each Monday, Sam is contacted by her manager to arrange the shifts that she wishes to work in the following two weeks. She does not have a contract of employment: indeed the nightclub views workers like Sam as casual workers, rather than employees.
Sam is paid £7 per hour, which, she is told, is enhanced to take into account the nightclub's obligations to pay statutory holiday pay under the Working Time Regulations 1998. She was not specifically asked if she agreed to this and she has been given no indication as to the proportion of her hourly rate that represents holiday pay. Furthermore, there is no specific allocation of the days that she does not work as holiday rather than rest days.
Sam has approached her manager and has indicated that she believes the nightclub to be in breach of the Working Time Regulations 1998 regarding holiday and holiday pay.
Advice
The issue of rolled-up holiday has been the subject of a number of court decisions in the last couple of years, most recently Marshalls Clay Products Ltd v Caulfield and others [2003] IRLR 552 EAT.
In Marshalls the Employment Appeal Tribunal (EAT) identified five categories of contract as far as the issue of holiday pay is concerned as follows.
1. Contracts between the worker and the employer that are silent in relation to holiday pay.
2. Contracts that purport to exclude any liability for entitlement to holiday pay.
3. Contracts where the rates of pay are said to include holiday pay but there is no indication or specification of an amount.
4. Contracts providing for a basic wage or rate topped up by a specific sum or percentage in respect of holiday pay.
5. Contracts where holiday pay is allocated to and paid during (or immediately prior to or immediately after) specific periods of holiday.
The arrangement operated by the nightclub would appear to fall into the third of these categories.
The EAT in Marshalls stated that categories 1, 2 and 3 fall foul of the Working Time Regulations 1998. Therefore, the nightclub's current practice is unlawful and could lead to proceedings being brought by Sam in the employment tribunal for damages.
In order to rectify this situation, the nightclub may have to make a specific increase to Sam's hourly rate to reflect the amount of holiday to which she is entitled and the proper rate of pay that is payable during such periods. The amount of annual leave could be calculated by taking an average period of three months and calculating the number of days worked in an average week.
The EAT gave guidance with regard to rolled-up holiday provisions in order to minimise the risk of breaching the Working Time Regulations 1998.
1. The rolled-up holiday must be clearly incorporated into the individual's contract of employment, and thus expressly agreed.
2. The allocation of the percentage or amount of holiday pay must be clearly identified in the contract, and preferably also in the payslip.
3. The percentage or amount of holiday pay must amount to a true addition to the contractual rate of pay.
4. Records of holiday taken must be kept.
5. Reasonably practicable steps must be taken to require workers to take their holiday before the expiry of the relevant holiday year.
The difficulty for many employers that employ workers like Sam is identifying which of the non-rostered days are rest days and which are holiday days. An important point made by the EAT in Marshalls is that holiday leave should be taken when a worker would otherwise have been required to work.
One solution to avoid breaching the Working Time Regulations 1998 might be to calculate, as accurately as possible, the amount of statutory annual leave to which Sam is entitled. The nightclub could then place her on the roster to work a period equivalent to her statutory annual leave entitlement. She could then be required to take leave during the period that she had been placed on the roster to work. Whilst this may seem rather convoluted, this is perhaps the best way to avoid breaching the Regulations.
Tony Hyams-Parish is a solicitor in the Employment Team at
Rawlison Butler (ahyamsparish@rawlisonbutler.com)
Further information on Rawlison Butler can be accessed at www.rawlisonbutler.com
