Why the Holidays Act is 'notoriously difficult' to follow

The Holidays Act 2003 is “notoriously difficult” to comply with. While the government has formed a tripartite task force to review the law, any change is some time away, according to two employment law experts who spoke to HRD.

The most common issues deal with the complexities of new work patterns and arrangements, such as when a full-time worker goes part-time; and how automated payroll systems should reflect these real-world complexities.

“Previous attempts have been made to address these issues,” said Andrea Pazin and Lorraine Hercus, senior associates at Buddle Findlay. They aim to bring clarity to the Holidays Act at the Employment Law Masterclass in May.

These amendments, they said, aimed to make the legislation “more straightforward and more adaptable” to new work patterns. But such attempts have failed to remove the current issues, or offer a “wholesale review” of current provisions.

“The variety of work arrangements makes it very difficult for employers to comply with their obligations under the Holidays Act,” the lawyers said.

Moreover, out of the 151 payroll audits conducted by the Labour Inspectorate from 2012 to 2018, 127 have led to the application of one or more compliance tools.

Why is non-compliance with the Holidays Act so prevalent?

There are many reasons behind non-compliance, according to Pazin and Hercus:

• The Act is very difficult to apply to any working arrangement outside the standard Monday-Friday 9 a.m. to 5 p.m. work week, eg shift work, variable hours, commission-based employment;
• The Act provides an entitlement to annual holidays after each 12 months of work, but most payroll systems accrue annual holidays from the commencement of employment, and employees can often take annual holidays as they accrue;
• Payment complexities arise if leave and holidays are taken when the working arrangements have changed from the time when those holidays or leave were earned;
• Payroll systems are often automated with a ‘set and forget’ approach or a default calculation, whereas compliance often requires manual intervention or the potential for multiple calculations;
• It can be difficult to determine what constitutes a workweek (for annual holidays) or a workday (for other types of leave) for a particular employee;
• Remediation processes can be complex and extremely costly.

“Non-compliance with the Act can result in unfairness to employees being incorrectly paid for their minimum entitlements, and can have considerable financial consequences for employers as a result of the remediation efforts required,” Pazin and Hercus said.

“There is no simple way to rectify these issues under the current law – and this is what the Holidays Act task force is attempting to address.”

For now, however, employers can take steps to ensure they are following the rules, even if their companies offer variable work arrangements:

• Ensure payroll systems remain compliant and perform manual checks and calculations where required.
• Discuss with the employee what constitutes an ordinary workday or week, either at the start of the employment relationship or when there are questions about entitlements or payment.
• Seek legal advice both as a preventative measure and at an early stage when issues arise.

Pazin and Hercus’ masterclass will explore the nuances of the law.

“From a political perspective, it is likely the government will want to avoid, or at least significantly minimise, any disadvantage to employees from resulting changes, such as actual or perceived loss of entitlements,” the lawyers said.

“It also needs to be able to work with payroll systems, and continue to reflect the purpose of the legislation, which is to promote balance between employees’ personal lives and work.”

The Holidays Act task force is due to release a final report in May 2019.

“Overall, the task force must try to make the legislative regime simple enough for employers to apply, but flexible enough to cover a range of working arrangements,” they said.

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