Government vows to make rolled-up holiday lawful

The government has announced its intention to make rolled-up holiday pay lawful.

In a move on Wednesday that the contractor sector is cautiously welcoming, the business department said “smarter regulation” would see rolled-up holiday pay introduced.

Solicitor Hannah Morrison, of law firm Brabners, observed that no dates or further details were initially provided in a policy paper, but said a consultation on legalising rolled-up holiday pay was the likely next step.

Rolled-up holiday pay is popular with contractors, because it means their holiday pay gets paid to them with their normal pay, as opposed to it being paid later when they take a holiday.

But currently in the UK, rolled-up is deemed unlawful, following a European Court decision in 2006 that paying holiday with pay for hours worked breached Working Time Regulations.

Commenting after the decision, the Advocate-General disagreed, suggesting rolled-up to be lawful if a mechanism was put in place to ensure workers took their annual leave entitlement.

'Take the risk'

Legalising rolled-up would end umbrella companies having to ‘take the risk’ (as one umbrella company owner put it to ContractorUK) of paying their staff in this way, knowing that prosecution is possible.

But an umbrella being taken to an employment tribunal only seems likely if their contractors claimed that they were unaware holiday pay was being dispensed in this manner.

To protect themselves should legal action ensue, umbrellas often get contractors to acknowledge in writing that their holiday pay is ‘advanced’ per payslip.

'Unscrupulous'

Yet not all umbrella companies are equal in their transparency.

“By rolling up holiday pay, temporary workers will receive it on top of their wages, which means they’re guaranteed to receive it,” says IWORK, welcoming the government proposal.

“[Some] temps don’t realise they’re entitled to it [and] these workers aren’t helped by the handful of unscrupulous umbrella companies and recruitment agencies that go out of their way to make sure this statutory right isn’t claimed, before keeping it themselves.”

Writing today exclusively for ContractorUK about the department for business and trade’s proposal, a tax lawyer confirms that umbrellas have reportedly kept workers’ holiday pay.

In the article, by ReLegal Consulting boss Rebecca Seeley Harris, the “unscrupulous” were said to have kept holiday pay when it was unclaimed at the end of the holiday year.

'Well-received'

Contractor Voice, a blog specifically set up to campaign on holiday pay, says it hopes rolled-up gets introduced quickly, with April 6th 2024 being the widely hoped-for commencement.

“The government’s decision to legalise rolled-up holiday pay is being well-received by most in the sector,” the blog’s Jacob Bellas began in a statement to ContractorUK.

“The changes mean that umbrella companies which capitalise on the outdated holiday pay laws to disadvantage contractors and increase their revenue will no longer be able to do so.”

'Wait and see'

Crawford Temple, of Professional Passport in effect told ContractorUK that he’s more cautious.

“It is encouraging to see that it is now back on the [government’s] agenda and up for discussion,” Mr Temple said on Friday of rolled-up holiday.

“Matthew Taylor in his Good Work review proposed that rolled-up holiday pay was made legal but the government rejected that proposal. Rolled-up holiday pay remains unlawful. Let us wait and see what the latest consultation brings.”

'Ramifications'

Clarity Umbrella is similarly not getting ahead of itself.

“The government proposing to re-introduce rolled-up holiday pay…[should] will mean that workers can receive their holiday pay with every payslip.

“About time,” says Clarity’s Lucy Smith. “However let's hope they apply it with caution and consider ramifications to lower paid workers.”

For the low paid, Smith was referring to rolled-up meaning that at times of leave, they receive “no monies” to cover the time not earning, and forego a means to finance any holiday.

'Life-changing'

Payroll audit firm PayePass has individuals’ bottom lines in mind too.

“For far too long, temps have lost out when it comes to claiming holiday pay”, the firm began.

“[So] it’s no overstatement to say that it will prove life-changing for many of the UK’s temporary workers.”

'Deliberately difficult'

The firm’s Fred Dures explained: “Some umbrella companies and recruitment agencies hide behind it being unlawful to pay holiday on top of wages, profiting when temps and contractors forget to claim their accrued holiday.

“[And] some make it deliberately difficult for their temps to claim accrued holiday, imposing complicated terms and deadlines so that they can profit instead of paying workers what they're due.

“What’s needed now is an imminent roll out so that dodgy practices can stop, and contractors receive their full entitlement.”

At IWORK, its CEO Julia Kermode echoed: “At a time when every penny counts, the move to [introduce] rolled-up holiday pay will help hundreds of thousands of temps make ends meet. It will also go a long way to stopping dodgy businesses from lining their pockets with it. Needless to say, the sooner this is introduced, the better.”

'Simple way to calculate holiday pay'

Vowing to reduce the administrative burden and complexity of calculating holiday pay by amending the Working Time Regulations, the Department for Business and Trade said:

“We propose introducing rolled-up holiday pay, so that workers can receive their holiday pay with every payslip, and merging the current two separate leave entitlements into one pot of statutory annual leave, while maintaining the same amount of statutory leave entitlement overall.”

In the now-available consultation on introducing rolled-up holiday pay (published on Friday), the department for business and trade says:

“In practice [and despite the ECJ ruling of 2006], rolled-up holiday is heavily used in the recruitment sector and the gig economy as a simple way to calculate holiday pay for workers on irregular hours or zero-hours contracts.

“We propose that rolled-up holiday pay is paid at 12.07%, as this is the proportion of statutory annual leave in relation to the working weeks of each year.

“In other words, statutory annual leave entitlement is 12.07% of hours worked by a worker. Introducing rolled-up holiday pay would ensure that workers with irregular hours receive their holiday pay regularly and up front.”

Open until July 7th, the rolled-up holiday pay consultation also seeks views on record-keeping requirements under the WTR and changing the consultation requirements of the TUPE regulations.