Rolled-up holiday pay

Q: I have been in my new job for four months and took two weeks' holiday, which was approved by my manager - but I have been deducted two weeks' pay. My manager now tells me that holiday pay is included in my hourly rate and I am not entitled to be paid while on leave. Is this lawful?

A: Workers in most sectors are entitled to four weeks' paid leave under the Working Time Regulations 1998 (WTR). At the moment, it is lawful for an employer to include holiday pay as an extra sum added to the hourly rate (known as "rolled-up holiday pay"), which in theory the worker then saves for their holidays. UK courts have asked the European Court of Justice to decide whether this practice complies with European law.

However, the Employment Appeal Tribunal (in the case of Smith v Morrisroes [2005] IRLR 72) has set out conditions that must be met for rolled-up holiday pay to be lawful: the employee must agree to the practice; the holiday payment must be a true addition to the hourly rate; and the contract must explain this and show how it is calculated.

As you were unaware that your employer pays rolled-up holiday pay, this suggests that you have not agreed to it and are not aware of how it works. Check your contract and any collective agreement to see if it is covered; if it is not, you can bring a claim under the WTR.