Q. Our agency has many temporary workers registered at any one time. Our workers come and go and may be registered working one week while the next week they may choose to 'de-register' to take work elsewhere. It is difficult for us to monitor holiday time so we pay an amount to our temps for their holidays with each timesheet payment. Is this a legal way of covering our obligations and what else should I do to comply with the law?
A. Paying statutory holiday pay along with pay for time worked is known as 'rolling up' holiday pay. Subject to strict guidelines set out by the English courts, the practice has been found to be legal in England for now. However, in Scotland the courts have taken a different view and ruled that rolled-up holiday pay is not legal.
Although 'rolling up' may be legal in England and Wales, allocating part of time-worked pay (that would still have been received anyway) as holiday pay would not be lawful.
Provided you are not operating in Scotland, you will definitely be best off agreeing provisions as to holiday pay in the contracts with the workers. These terms should state an amount for holiday pay or set out a method of calculation. The calculation method could, for example, be based on a percentage rate of ordinary pay, but if you are using this method do not forget that statutory holiday pay is only due based on 48 weeks' work a year. Dealing with the issue up-front in the contract will give you the best commercial protection.
Although agreement on holiday pay can be reached through documentation separate to the actual contract, if you choose to settle the matter by letter or email outside of the basic contractual arrangement you should ensure you obtain written agreement back from the candidate. The best protection will be afforded if both you the recruiter and your candidate sign the same document. In addition, however rolled-up holiday pay is agreed, you should itemise the relevant sums in all payslips given to the candidate.
It should be stressed that, once you have proper written agreement on holiday pay arrangements, it is not the end of the matter. Paid holidays are part of European legislative requirements to encourage the taking of time off. On this basis, payments for holiday time not taken during the holiday year may not be carried over and paid the following year (although payments for the existing year can be paid on contract termination).
In addition to payment, the regime requires you take active steps to encourage the taking of holidays and that you keep proper records. If workers are reluctant to take holidays (perhaps due to the nature of temporary work, a candidate may feel he or she has had sufficient breaks) this will not automatically mean that you will be forced into a breach of the law. The requirement is that 'practical steps' are taken so you don't need to force the issue.
A note of warning, however. The conflict between the Scottish and English rulings has led the matter to be referred to the European Court of Justice to find whether rolled-up holiday pay is legal under the relevant European directive. A decision is not expected before the end of this year, but there is a wide body of opinion that the court may not approve the practice of rolling up. The thinking here is that workers would be more encouraged to take holidays if they only received the holiday pay when they actually take the holiday.
The risk firms face in rolling-up holiday pay is that if it is ruled unlawful it could be argued that proper holiday payments have not been made, so back payments would be due. Either way, you are best protected if you set up your procedures so as to pay for holidays when they are actually taken.
CONTRIBUTOR: Adrian Marlowe, Lawspeed RECRUITER