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How is accrued holiday pay calculated on termination?

Posted on 2nd October 2013
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In this case the employment tribunal had to decide if an employer could pay a token payment of £1 in lieu of accrued but untaken holiday pay on termination.

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Julie Temple Julie
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Payment in lieu of accrued holiday 'must be calculated so that the worker is put in a position comparable to that he would have been in had he exercised that right during the employment relationship'. This meant that the payment had to 'reflect normal pay'

Podlasiak v Edinburgh Woollen Mill 2013

Background

Under the Working Time Regulations (‘WTR’) a worker is entitled to payment of accrued but untaken holiday on termination of employment. The level of payment can be set out in a ‘relevant agreement’ (such as an employment contract) or, if there is no agreement, under the WTR a week’s holiday is to be paid at the same rate as a week’s pay. 

The facts

Ms Podlasiak was employed by Edinburgh Woollen Mill for only a short period, between May and December 2012. Her contract of employment provided that, on termination of her employment, she would receive £1 in lieu of her entitlement to accrued but untaken holiday pay. Calculated on the basis of her week’s pay, Ms Podlasiak would have been entitled to £176. The employment tribunal had to decide what Ms Podlasiak was entitled to.

The decision

The employment tribunal accepted that Ms Podlasiak’s contract of employment was a relevant agreement and on the face of it the WTR allowed employers and workers to agree for a token payment on termination. However, European case law, which the employment tribunal had to take into account, requires that payment in lieu of holiday ‘must be calculated so that the worker is put in a position comparable to that he would have been in had he exercised that right during the employment relationship’. This meant that the payment had to ‘reflect normal pay’. The employment tribunal therefore awarded Ms Podlasiak payment of £176.

In practice

Our experience is that agreements for token payments are few and far between. Whilst this is an employment tribunal decision only and not necessarily binding on other employment tribunals, it is indicative of current thinking. Prudent people managers will need to review all arrangements for payment in lieu of holiday on termination. It seems that this decision does not just impact on token payments but also any payment in lieu of holiday entitlement on termination at a rate which is less than ‘normal’ pay. If you need help working out if you need to make any amendments, what amendments you can make and how to go about it, please contact me.

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