Legalising rolled-up holiday pay is a welcome, overdue step for umbrella company contractors

The government on Wednesday May 10th indicated as part of its vision for smarter regulation since leaving the EU that the UK will consult on reducing the administrative burden and complexity of calculating holiday pay and, chiefly for umbrella company contractors, will introduce rolled-up holiday pay.

True to its word, and with none of the long delay between government intention and government action that we’ve seen before for the umbrella market, the Department for Business and Trade published a consultaition on rolled-up holiday pay just two days later -- Friday May 12th, writes Rebecca Seeley Harris of ReLegal Consulting.

Rolled-up has multiple benefits

Well, this is a very welcome move as it may potentially mean that thousands of umbrella company workers (and also casual workers) will soon be paid the holiday pay that they are due. And it should stop abuses of the system.

If rolled-up holiday pay goes ahead, then it will have been made possible by the UK coming out of the EU. That’s because the history of rolled-up holiday pay is steeped in Article 7 of the Working Time Directive. 

This directive (which is actually the social policy – Protection of the health and safety of workers – Directive 93/104),  was designed to protect the worker.

Indeed, the reason the government gave us for not agreeing with the recommendation to legalise rolled-up holiday pay -- made by Matthew Taylor in the Taylor Review, was because of health and safety.

What is the accrued system of holiday pay?

The whole point of the directive was to ensure that the worker actually took time off for which they would get paid. This is known as the accrued system of holiday pay.

Under the accrued system, the worker has to take the time off and they then get paid for the time taken. Also, under the legislation, if you fail to take the time off, you don’t get paid and then you lose your holiday entitlement for that year at the end of the holiday year. There have been various cases on holiday pay and the accrued system which have warned employers that they needed to tell their employees that they needed to take their holiday entitlement or they would lose it.

Recently, the Pimlico Plumbers case clarified that an employer has to have a system to ‘specifically and transparently’ inform the worker that they need to take their holiday entitlement. If the employer doesn’t, the worker would not lose the entitlement at the end of the holiday year but, it would carry over until termination of the contract. This clarification has helped but, it is still not enshrined in statute. And it needs to be. 

It can only be a good thing...

The accrued system is all very well but, it only really works for those who are permanently employed. Those people who work irregular hours or days or are ad hoc or casual workers, find it much more difficult to take time off. As a result, such individuals have often ended up having no time off and not getting their holiday pay. Even worse, some unscrupulous employers, most notably in the umbrella company sector, are reported to have kept the holiday pay that was due to the workers when their holiday entitlement ceased at the end of the holiday year.

So, if the government legalises rolled-up holiday pay it will not only benefit the worker but, it will cut administrative burdens for business and stamp out the abuse. It can only be a good thing. All these points have been highlighted by myself, under the Fair Umbrella campaign, and numerous others including Matthew Taylor. So, let’s hope it happens, ideally for introduction from April 6th 2024.

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Written by Rebecca Seeley Harris

Rebecca is a leading expert in employment status, IR35 and the law involving independent contractors and the self-employed for the purposes of tax and employment law. Rebecca has run her own consultancy for the past 20 years covering all employment status issues such as off-payroll in the private and public sector, otherwise known as IR35, s.44 and any issues affecting the self-employed and personal service companies.
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