You may not be familiar with the term, as ‘rolled up holiday pay’ (or RUHP) was illegal in the UK from 2006. But since the new 2023 Employment Act came into force it’s legal again – so what exactly is it, and should employers be using it?
Rolled up holiday pay is where, instead of taking paid annual leave in the form of days off, the cash value of this holiday is calculated and ‘rolled up’ with your basic pay.
Typically, this is based on a percentage increase to the standard hourly rate. In the case of the statutory paid annual leave allowance of 5.6 weeks a year, you’d add 12.07% to the standard hourly rate.
Why was this illegal?
In the past, RUHP was sometimes used as a financial incentive to not take holiday. The practice was challenged and the issue ended up at the European Court of Justice, which found that RUHP contravened article 7 of the Working Time Regulations of 1998. As such, RUHP was deemed non-compliant (under EU law) with workers’ rights.
What’s so bad about it?
Doesn’t making an employment benefit or perk optional give more choice and flexibility to workers? Isn’t that a good thing? To an extent. But holiday pay is not a ‘perk’, it’s a right. Other types of leave, like a leave of absence, are also essential for work-life balance.
Employment laws are there to prevent unfair, unsafe and unhealthy practices and treating paid holiday as optional and effectively trying to bribe people to not use it, is both unfair and unhealthy. We are people, not robots; you can’t just switch us off and on at the start and end of shifts, we need to rest and recuperate and live a life outside of work.
Paid time off shouldn’t be a luxury. Those under financial strain would be more likely to take up the offer of extra upfront income instead of time off, but at what cost? It’s effectively a form of paid, or incentivised, presenteeism – which has a negative impact on productivity and widens inequality gaps.
Defenders of prior forms of RUHP would say you’re getting the same value from holiday pay upfront as you do from paid time off. But that’s only true if you value holiday in purely financial terms. Paid leave is about so much more than that – it’s a mental break, freedom, choice, time to spend as you please. All these things are essential for health and wellbeing, not luxury items.
So what’s changed?
Despite being essentially illegal before this year, in practice RUHP had been in consistent use across many industries in the UK.
Recent legislative reform has introduced new nuances that add clarity and mean RUHP can be legally used in some contexts and conditions – chiefly, for irregular and seasonal work.
The legalisation of RUHP comes in the context of a whole host of new employment laws and regulations designed to protect workers from exploitation and unfair practices. This should mean that the benefits of these kinds of flexible work contracts can be realised without the risks that were there previously.
Casual workers have been more at risk of being exploited and of not receiving the same benefits as others in traditional work contexts. RUHP simplifies the process of managing holiday pay for these workers, making it more likely to actually be given. As such, its legalisation in the contexts in which it logically applies, is a step forward.
The crux of the issue lies in the separation of holiday pay from holiday itself. For those only working part of the year, or for short periods, this is not so problematic.
But full-time employees should be taking regular, paid breaks throughout the year, and RUHP does nothing to support this – it only provides a reason not to take time off and so risks burnout.
Smart employers these days recognise the link between mental and physical wellbeing and productivity and absenteeism. Using RUHP to try and entice people to work beyond what is reasonable and sustainable is likely to result in a higher number of sick days – a false economy.
Key takeaways
RUHP is only controversial in its misuse. In and of itself, it’s a way to ensure casual and seasonal workers get what they are legally entitled to in terms of holiday pay, and aren’t short-changed due to short contracts.
The problem arises when it’s not used in the spirit in which it’s intended (which remains illegal). It cannot be used to incentivise people to forgo time off. Full-time employees on permanent, year-round contracts should not be receiving RUHP.The legalisation makes it clear that RUHP should be given under certain conditions, and provides a framework for calculating and paying it. In that sense, it’s a step forward in putting all employees on an equal footing and ensuring that a healthy work-life balance is available to all.