When employees leave having taken more holidays in the current holiday year than they are entitled to, can the overtaken holiday be deducted from their final wages?

Workers have entitlement to holiday pay under the provision of the Working Time Regulations 1998 and, in many cases, under the terms of their employment contracts. The Regulations give a minimum entitlement to paid holiday leave but many employers give considerably more than the statutory minimum. When an employee leaves, the Regulations require any "undertaken" entitlement to be paid on termination.

Example: An employee is entitled to 28 days statutory leave during a holiday year. The employee leaves half way through the holiday year, by which time the employee has taken 10 days paid leave. The entitlement for 6 months is 14 days, so the shortfall of 4 days must be paid on termination. There is a statutory method of calculating holiday pay on termination if the employee's contract does not specify the procedure.

However, if a worker has taken more than the appropriate proportion of the annual entitlement at the time of leaving, there is no statutory requirement for workers to repay the value of the "overtaken" holiday, or for the employer to deduct it from final wages. Whether it can be recovered by the employer is a contractual matter.

An employer's ability to make a deduction in respect of overtaken holiday pay is governed by the protection of wages provisions of the Employment Rights Act 1996. Employers cannot arbitrarily make deductions from wages at any time, and that includes the final wages due on termination.

For a deduction from wages to be lawful, it must meet one of three specific conditions. The relevant condition is that the deduction must be required or authorised by an existing provision of the worker's contract. If there is no provision in the worker's contract that allows for the recovery of overtaken holiday, any such deduction is unlawful and the worker is entitled to seek recovery from the employer by applying to an employment tribunal.

Example: An employee has a contractual entitlement to 30 days annual holiday during a holiday year. The employee leaves half way through the holiday year, by which time the employee has taken 20 days paid leave. The entitlement for 6 months is 15 days, so the employer wishes to recover the value of the extra 5 days. The worker's contract authorises such a deduction so the employer reduces the worker's final wages by the value of 5 days holiday.

Although many employers have the practice of recovering overtaken holiday pay, their employment contracts are often silent on the matter of overtaken holiday. Any deduction in that situation is unlawful.

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