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The APPORTIONING of holiday pay to employees on atypical contracts has been the subject of much debate since the Working Time Regulations came into force. Many employers "roll up" the basic rate of pay to include an element of holiday pay.

Scotland's Court of Session criticised this practice in MPB Structures Limited v Munro (2003). It found that pay rates that included an element of holiday pay did not satisfy Working Time regulation 16. Although this decision was not binding on English tribunals (being a Scottish ruling), it was relied on by applicants for a short period.

By July this year, the Employment Appeal Tribunal had effectively overturned the Munro decision in Marshalls Clay Products Ltd v Caulfield and Others.

In Marshalls Clay, the tribunal identified five types of contract affected by regulation 16:

• contracts that are silent as to holiday pay;
  
• contracts that purport to exclude liability for holiday pay;
  
• contracts where rates are said to include holiday pay, but there is no indication or specification of the amount;
  
• contracts providing a basic wage topped up by a specific sum or percentage for holiday pay;
  
• contracts where holiday pay is allocated to and paid during (or immediately before or after) specified periods of holiday.

The tribunal found that the first three types of contract breached the regulations. The fourth category – a basic wage that is topped up – will comply with the rules providing there is a specified sum, or percentage, allocated to holiday pay. The category reflects the typical contractual arrangement, where employees receive a monthly wage and make arrangements to take their annual leave, being paid while doing so.

Employers that "roll up" holiday pay should minimise the risk of problems by ensuring that:

• the rolled-up pay is clearly incorporated into the individual contract of employment, and therefore expressly agreed;
  
• the allocation of the percentage or amount of holiday pay is clearly identified in the contract, and preferably also in the payslip;
  
• it amounts to a true addition to the contractual rate of pay;
  
• records of holidays taken are kept;
  
• practical steps are taken to encourage workers to take their holidays before the expiry of the relevant holiday year.