Payment in lieu of minimum holiday?


Under new rules, employees can carry certain holiday forward for up to two years if they’ve not been able to take it due to coronavirus. To prevent this, could you pay them in lieu for that holiday instead?

Temporary rule

One of the practical consequences of the coronavirus pandemic is that many workers have or will be prevented from taking some or all of their holiday entitlement. Because of this, the government introduced the Working Time (Coronavirus) (Amendment) Regulations 2020. These Regulations permit the carry over of certain untaken holiday for up to two years where it wasn’t reasonably practicable for the worker to take it in their current leave year due to coronavirus.

Only certain holiday

The temporary carry-over rule only applies to the minimum four weeks’ statutory holiday which workers are granted under the Working Time Directive (WTD). It doesn’t apply to the additional 1.6 weeks’ holiday granted to UK workers under the Working Time Regulations 1998 or any additional contractual holiday entitlement you grant; that is determined by the employment contract.

Admin issues

The fact that WTD holiday rights may now be carried over for up to two years is a potential headache for many businesses. For example, a worker could potentially request to take their 2020 four weeks’ WTD holiday entitlement in 2022 (plus their 2022 four weeks’ WTD holiday entitlement). To avoid this, could you say “no WTD holiday carry over, we’ll pay you for your WTD holiday instead” ?

No go

Unfortunately, this isn’t possible. You cannot ordinarily make a payment in lieu for some or all or those four WTD -derived weeks’ holiday. The only exception is when a worker is leaving your employment, e.g. due to a redundancy or resignation. In these circumstances, you must pay them for all accrued but undertaken holiday.

Tip. To discourage coronavirus-related holiday carry over, you could tell staff that you will be deciding the dates it can be taken in a particular holiday year; it won’t be their choice. Alternatively, you could apply a first come, first served rule. These are both perfectly acceptable and most workers will want to choose when they can take holiday.

Under the new rules, only the four weeks’ minimum holiday can be carried over. A payment in lieu for this statutory entitlement can only be made where a worker is leaving, e.g. due to redundancy or resignation.

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