The ECJ has held in the conjoined cases of Robinson-Steele v PD Retail Services, Clarke v Frank Staddon Ltd and Caulfield & others v Hanson Clay Products Ltd that rolled up holiday pay is precluded by the Working Time Directive. However it also ruled that any payments already made in respect of holidays under a rolled-up holiday pay scheme can be set-off against the payments due during the holiday.

It has been common in the UK, where a worker's hours are likely to be irregular, to have a "rolled-up holiday pay" arrangements. These involve not paying the worker for their annual leave at the time that the leave is taken, but incorporating an element relating to holiday into their hourly rate. In effect, the worker receives an enhanced hourly rate to compensate for the fact that holiday pay will not be paid when holiday is taken.

In its decision, the ECJ ruled that:

  • Employers cannot simply allocate part of an existing wage packet to holiday pay. The holiday pay must be an additional payment to that made in respect of work actually done.
  • Employers must pay holiday pay during the specific period that the worker takes leave. It is unlawful to stagger payment over the year.
  • In the event that the employer does roll up extra money in respect of holiday pay, it can set off the extra money already paid against the payments it ought to make during the specific holiday period. The burden is on the employer to prove the transparency of the payment.

The ECJ effectively decided that whilst rolled up holiday pay is technically unlawful, as long as it is set out transparently and is a genuine payment in respect of holidays then the payment can be set off. The DTI has stated that it will not be amending the Working Time Regulations 1998 in light of the ECJ's decision and so the existing practice of paying rolled up holiday pay can continue until such time as the law is changed.

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