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Author: GElliott1
New case – holiday pay on termination
If an employee hasn’t taken all of their holiday at the point they leave you, they’re entitled to be paid in lieu of that untaken holiday. But what if there’s a clause in their contract that says they lose it all?
A recent Employment Appeal Tribunal decision (EAT) has confirmed that employees must receive at least their statutory minimum holiday entitlement up to the point they leave, or payment in lieu of that leave.
Background
In this case, the employee brought a successful claim for unlawful deduction from wages. The employee’s contract allowed the employer to calculate payment in lieu of holiday on termination at a lower rate than had they taken the holiday whilst they were working.
Despite this, the EAT said this practice was unlawful as it allowed the employer to pay less than the statutory minimum holiday (5.6 weeks per year) to which the employee was entitled.
Practical takeaway
The Working Time Regulations allow a ‘relevant agreement’ between employee and employer (such as an employment contract) to set out how payment for any accrued untaken holiday will be calculated on termination. However, this case makes clear that any such contractual provision must ensure that the employee is entitled to at least statutory minimum holiday in the holiday year they depart (whether taken or paid in lieu).
The key takeaway from this case is to ensure that your employment contracts don’t go further than this. You’re entitled to say that employees don’t receive payment in lieu of any enhanced holiday on termination, but employees must still receive that all-important statutory minimum holiday.
This update is accurate on the date it was published, but may be subject to change which may or may not be notified to you. This update is not to be taken as advice and you should seek advice if anything contained within affects you or your business.
Employment contracts and the ‘3Cs’ – pt.3 | Commerciality – avoiding unnecessary costs
This is the second part of what ‘commerciality’ means for your employment contracts. You don’t need to include these provisions, but in doing so you’re giving yourself the potential opportunity to avoid unnecessary costs for your business.
Here are my top three ‘quick wins’ to help save some cash within your contracts:
Holidays – departing employees often lose their ‘mojo’ during their notice period – it’s human nature. By requiring them to take accrued unused holiday during their notice period, you save on paying them a lump sum in lieu of untaken holiday when they leave.
PILON – payment in lieu of notice clauses are important, but costly. You’re paying a lump sum for someone to avoid working for you! How can you minimise the cost of PILONs? You can stagger payments and require departing employees to start their job search immediately, and then to tell you when they’ve found a new job. If you add in that they must start their new job as soon as an offer is received, you can potentially end notice pay at that point (provided you’ve paid at least the statutory minimum).
Probationary periods – save unnecessary admin and cost by commencing pension contributions once the employee has successfully completed the first three months of employment. You can also limit notice periods during probation – that way, if you feel that the individual doesn’t have the skills for the role, or simply just doesn’t ‘get it’, you can limit notice costs during this period.