UK: European Court of Justice Ruling Indicates that ‘Rolled-Up’ Holiday Pay is Unlawful

Last Updated: 22 March 2006
Article by Christopher Booth

Originally published 16th March, 2006*

A ruling today* by the European Court of Justice (ECJ) in the case Caulfield v Hanson Clay Products Ltd (formerly Marshalls Clay Products Ltd) indicates ‘rolled-up’ holiday pay is unlawful even if it is clear in the contract of employment what proportion or amount of the rolled-up pay is holiday pay. Pinsent Masons is acting for the employer in this case.

What is rolled-up holiday pay?

‘Rolled-up’ holiday pay refers to the practice of an employer agreeing with workers that their pay for annual leave is included in their hourly remuneration and paid as part of remuneration for working time but not paid in respect of a specific period of leave actually taken. It is a practice used by many employers in the UK, particularly in the construction, manufacturing and education sectors.

Although there are many variations, essentially the issue arises when employers pay workers by the hour and agree to add to their hourly rate of pay a specified percentage for holiday pay. The worker therefore receives holiday pay on an ongoing basis throughout the year but does not receive a separate payment as and when leave is taken - indeed the worker may not formally take any particular period of leave, but is treated as being on holiday when he or she is not working. Payment of holiday pay through this rolled up hourly pay system is administratively convenient for employers as they do not have to specifically calculate holiday pay every time a worker takes leave, which is especially beneficial for the employer in circumstances where hours of work (and therefore amounts of pay) fluctuate throughout the year. However the system has been criticised as discouraging workers from taking holiday, particularly as the more work the individual carries out the more pay they earn during the year.

Today's* ECJ decision

The ECJ has decided that the practice of rolling up holiday pay is not lawful under the Working Time Directive. Holiday pay must be paid in respect of a specific period during which the worker actually takes leave. This is a harder line than was taken by the Advocate General in her Opinion last year. The Advocate General's Opinion suggested that rolled-up holiday pay could be lawful subject to the employer putting in place safeguards to ensure that workers can take the leave to which they are entitled under the Directive. In most cases the ECJ follows the Advocate General's Opinion but it does not have to. The ECJ's Judgment is likely to mean that the practice of paying holiday pay as part of a rolled-up rate will have to stop.

Credit for holiday pay in existing rolled-up rate

Many employers will be wondering what the effect of this decision is likely to be on sums already paid to workers in respect of holiday through a system of rolled-up holiday pay. Helpfully, the ECJ Judgment says that holiday payments made as part of a rolled-up rate in a transparent and comprehensible way may be set off against payment for specific leave.

Existing law

The ECJ Judgment is particularly significant because of the conflicting case law in the UK - in the Marshalls case the EAT and the Court of Appeal were inclined to allow employers to use rolled up hourly rates of pay, but there is a Scottish Court of Session case (MPB Structures Limited v Munro) which ruled that these practices were unlawful.

Because the rolled up holiday pay system has been found to be unlawful by the ECJ, employers are likely to face administrative inconvenience. They could also, potentially, have faced the problem of not being given credit for the holiday element of the rolled-up rate so as to set this off against the entitlement to holiday pay under the Directive.

The Munro case established that, if the employer has not been paying for holiday pay validly under the Working Time Regulations, any payments made to the employee do not count. It is good news for employers that the ECJ Judgment allows for off-setting where the rolled-up holiday pay system has been operated in a transparent and comprehensible manner.

It had been thought that there would also be the potential for large claims for backdated holiday pay going back as far as 1 October 1998 when the Working Time Directive was implemented in to domestic law by the Working Time Regulations. However, in 2005 the Court of Appeal held in Inland Revenue v Ainsworth that claims to enforce entitlement to holiday pay can only be brought under the Working Time Regulations and not as a claim for unauthorised deductions from wages. The effect of this is to limit a claim for backdated holiday entitlement to the most recent holiday year.

Practical implications

In practical terms, it would seem that the practice of paying rolled-up holiday pay is going to have to stop because the ECJ has decided that it can lead to workers not taking their 4 weeks annual leave entitlement under the Working Time Regulations. Employers who use systems of rolled-up holiday pay would be best advised to change to a system which ensures that workers are paid in respect of specific periods of leave.

Employers who have already paid sums to workers in respect of holiday pay in a transparent and comprehensible way as part of a rolled-up rate, will be entitled to credit for such sums against payment due for a specific period of leave. This means that there is only likely to be a financial exposure as a result of the ECJ's Judgment for those employers who have paid rolled-up holiday pay in a way which lacks transparency.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.