Holiday entitlement and pay have become particularly complex for employers over recent years. The challenge is that if employers’ holiday processes are wrong or they are not up to speed with the current legal position, it creates legal risks. Workers who are being underpaid holiday pay can bring claims collectively going back up to two years.

With the government estimating that approximately 3bn of holiday pay goes unpaid each year in the UK, it is a sizeable problem. Whilst the government has stepped back from its commitment to enforcing holiday pay under a single enforcement body (much like it does with the National Minimum Wage), it has recently released two separate consultations on the issue. We take a look at those and how they may impact employers.

Why can holiday pay be a complicated for employers?

Holiday pay can be complicated partially because the law derives from Europe, as a consequence of which, there have been many legal cases which have challenged some of the previously well held concepts in the UK. It is also challenging because the calculations set out in the legislation are complicated and practices which have been introduced to simplify them have later been held to be unlawful.

Common issues include:

• Not including paid overtime which is regularly worked in holiday pay calculations.
• Using a 12.07% formula to calculate holiday pay for workers with irregular working hours (bank workers / casual workers).
• Rolling up holiday pay – this is where employers...

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