Calculation of holiday pay within a relevant agreement

The EAT were asked in the case of Mr Steven Connor v Chief Constable of the South Yorkshire Police 2023 to make a decision about holiday pay in the sum of £53.90. Notwithstanding the sum involved, an important point of principle was at stake. Find the case here.

Regulation 14 of the Working Time Regulations 1998 sets out the entitlement of a worker to payment of accrued but untaken holiday on termination. It sets out that the entitlement is calculated either:

• by adopting the statutory formula of (A x B) – C. Where A is the worker’s annual leave entitlement, B is the proportion of the leave year that has expired and C is the period of leave taken by the worker up to the termination date; or
• “such sum as may be provided for the purposes of this regulation in a relevant agreement”

In Mr Connor’s case, his contract stated “Employees may, on termination of employment, be entitled to payment for untaken annual leave….Payment will be based on 1/365^th of annual salary for each day’s leave.”

When Mr Connor’s employment was terminated, he received a payment in respect of accrued holiday calculated as per his contract of employment. He complained that this amount was lower than if the statutory formula had been applied.

It was agreed that his contract of employment constituted a relevant agreement in which the employer and employee could agree their own mechanism for calculation of entitlement on termination. However, the EAT held that this did not permit the employer to agree an entitlement that was not in keeping with the minimum rights provided for in the regulations: i.e. a relevant agreement can provide enhanced rights to a worker, but it cannot be used to reduce their entitlement below the basic provisions of the Working Time Regulations. The difference between the two methods in Mr Connor’s case was £53.90.

A number of employers do use their own methods of calculating holiday pay on termination that do not fit precisely with the statutory formula (for example, because they calculate entitlement in hours, as opposed to the statutory formula, which uses weeks). The difference between the two approaches is often marginal (as in Mr Connor’s case), but for large employers, with many of these payments every year, such differences can add up.

If you have any queries on this article, get in touch with Rena Magdani & Matt McBride.

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Read the other topical articles from our June 2023 Employment Law Update:

• New family friendly legislation: three government-backed Private Members Bills received Royal Assent
• The sunset of EU-derived law is cancelled, but there may be some reform of employment law
• The Employment ‘Allocation of Tips’ Bill received Royal Assent

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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.