The right to paid holiday under the Working Time Regulations 1998 sounds very simple, but in practice has generated much in the way of litigation and disputes. In our experience, many individuals are not provided with their full legal entitlement to pay during their annual leave.
How much annual leave am I entitled to?
You are entitled to at least the amount of annual leave provided for under the Working Time Regulations 1998. However, in many cases your contract may be more generous.
Regulation 13 of the Working Time Regulations 1998 provides that workers are entitled to four weeks’ holiday in any leave year. This implements a European law right under the Working Time Directive (Directive 2003/88/EC). This is often referred to as ‘ordinary annual leave’.
Workers are also entitled to an additional 1.6 weeks’ leave under Regulation 13A of the Working Time Regulations 1998. This is often referred to as ‘additional annual leave’.
So, if you work 5 days per week, you are entitled by statute to 5 x 5.6 days annual leave each year, IE 28 days. This includes bank holidays.
What am I entitled to be paid during my annual leave?
You are entitled to be paid during your annual leave. How much you are entitled to be paid is a difficult question, which will depend on a variety of circumstances explained below.
Firstly, you are entitled to be paid in accordance with your contractual entitlements. Your contract may provide for generous pay during periods of annual leave, but it cannot be less generous than the statutory rights you have under the Working Time Regulations 1998.
During your ordinary annual leave, you will be entitled to be paid your ‘normal remuneration’. This means that any regular bonus, commission, overtime or incentive payments that you receive should normally be included when your annual leave is calculated.
The best way to think about what you are entitled to be paid in respect of holiday pay during ordinary annual leave is to think about whether you will be worse off financially if you decide to take your full entitlement. In the case of Williams v BA C-155/10  ICR 847, the ECJ held that the way that pay was broken down in the contract into different types of bonus, incentive and ordinary pay “cannot affect the worker’s right ... to enjoy, during his period of rest and relaxation economic conditions which are comparable to those relating to the exercise of his employment”.
Therefore, the ‘overarching principle’ when calculating pay during ordinary annual leave is that workers should not suffer a financial detriment if they decide to use their full annual leave allowance.
So, even if your pay is broken up into different elements (normal pay, bonus, incentives, overtime etc), then as long as these payments are regular and settled, such as they can be described as your ‘normal pay’, you should receive corresponding remuneration when taking ordinary annual leave.
That principle may not apply during additional annual leave and may not apply during any other contractual annual leave, depending on what your contract of employment states. Bonus payments and non-guaranteed overtime are often outside the scope of the pay that is required to be provided during additional annual leave.
When you are considering an element of your pay (such as commission or bonus) for the purposes of ordinary annual leave, and are wondering whether it should be taken account of when calculating holiday pay, it is worth asking the following questions:
- Is the element of pay regular in amount?
- Is the element of pay regular in frequency?
- Is the element of pay discretionary, or is it a contractual right?
- Is the element of pay paid on a regular basis as a reward for your effort (either success or overtime), or is it a bonus based on the company’s success (IE a Christmas bonus or a one off incentive payment)?
If you want to make a claim about being underpaid holiday pay, you will need to do so quickly. There is a three month time limit (which in practice means three months minus one day) under Section 23 of the Employment Rights Act 1996. This time limit runs from the most recent underpayment. If more than three months have elapsed between underpayments, you may not be able to claim for underpayments that occurred in the past.