the English case of Marshalls Clay, the EAT issued
guidance on the circumstances in which rolled-up holiday
pay may be lawful in terms of the Working Time Regulations
1998 (the "Regulations"). Rolled-up holiday pay refers to an inclusion of pay for annual leave within
the general wage figure provided to employees. In a
series of appeals arising out of Marshalls Clay, the
EAT have issued new guidelines. Note, however, that
the matter has been referred to the European Court
of Justice and so the guidelines will be subject to
any change in the law which results from this reference.

It is not enough for employers to say after the fact that, by the way, your wage
includes holiday pay. Consideration must be given to
whether the term which the employer claims authorises
rolled-up pay actually forms part of the contract of
employment. The provision in relation to holiday pay
must be incorporated into the contract. In addition,
guidelines now state that employers must show that
there is a:-

  • mutual agreement for
    genuine payment for holidays, which must
  • represent a true addition to the contractual rate
    of pay for time worked.

From an evidential perspective,
compliance with the guidelines may be demonstrated
by: (i) the clear incorporation of a provision for
rolled-up holiday pay into the contract of employment;
(ii) the identification of the percentage or monetary
sum allocated to holiday pay to be identified in the
contract and, if possible, also in the payslip; and
(iii) records to be kept of the holidays which have
been taken by the employee, and reasonable steps to
be taken to ensure that workers take all of their annual
leave before the end of the relevant holiday year.
Employers in England should examine their current practices
in this regard in order to protect their position.

Note also that, until
clarification is received from the ECJ, the position
in Scotland remains different to that referred to above.
Unlike England and Wales, in Scotland a provision in
an employment contract which provides for rolled-up
holiday pay puts the employer in breach of the Regulations.

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