Don't barter Holiday entitlement for NMW increase

Published in Bottomline, Winter 2007

We welcome the recent Government proposal resulting from the consultation which began on 13th June 2006 about increasing the statutory minimum holiday entitlement in Britain.

The proposed increase in holiday entitlement is from 20 days to 28 days and it has been estimated that this will benefit 6 million workers in Britain.

The results of the initial consultation on increasing workers holiday entitlement were published by the dti in January 2007. The proposal to increase workers holiday entitlement from 20 days to 28 days aims to take account of the bank and public holidays in the year. If this new legislation is approved workers who previously had bank and public holidays included in their statutory right to four weeks paid leave will have the right to a further eight days each year. 28 days will be a minimum statutory entitlement and will not affect those workers who at present get more than 28 days.

The Government proposes that employers will be able to carry over contractual leave in excess of four weeks to the following year although employers will not be required to give this flexibility. However, in view of safeguarding the policy objectives of increasing statutory holiday entitlement which is to improve workers work-life balance, employers will not be able to offer payment in lieu of taking additional holiday entitlement. Workers who work more than a five day week will also have a holiday entitlement of a minimum of 28 days. In other words if a worker works a six day week, the employee will not have pro rata 5.6 weeks holiday based on a five day week. The Government has also stipulated that any future changes in bank or public holidays will not automatically result in an increase in holiday entitlement.

The increase in statutory holiday entitlement will be introduced in two phases. The first increase is proposed for 1 October 2007 when the holiday entitlement will increase to 4.8 weeks followed by an increase to 5.6 weeks from 1 October 2008. We recommend that there be very clear guidelines on the phased introduction due to the varying leave years in different organisations. We have already received calls to our advice line from people asking how the leave entitlement will be calculated due to the phased introduction falling in October whereas their leave year falls in January or April of each year. This means that two calculations will have to be made to calculate holiday entitlement and clear guidelines will be needed by employers and employees as to how to calculate this.

Arguments for:

Increasing the statutory holiday entitlement will improve workers work-life balance and enable workers to combine work and family commitments with greater ease. More holidays also reduces stress and raises productivity and maintains motivation.

The increase will also bring UK workers' minimum annual leave entitlement closer to the more generous entitlements offered in other European countries. Currently, for example, workers in Ireland have a minimum entitlement of 29 days and the highest minimum holiday entitlement in Europe is Austria's 38 days.

Unison general secretary Dave Prentis said, “Improving the work-life balance of 6 million will reap enormous benefits both for the workers and for business, all for such a small price – costed by the Government at only 0.4% of the pay bill…Good employers will recognise and welcome this move. Better employers won’t wait a year to implement it in full. They will know that a well-treated workforce is a more productive workforce.” (Unison press release 11th Jan 2007)

Arguments against:

Increasing the statutory holiday entitlement will incur costs on business, which do not already give at least 28 days holiday. This will especially affect the hospitality sector.

The estimated cost for employers of implementing the increase in statutory holiday is £3.3 billion to £4.4 billion. Low-paying sectors are most likely to be affected by the increase in holiday entitlement and the Government has proposed to keep the Low Pay Commission, which will recommend the next increase in the National Minimum Wage, informed. The Government recommends that the Low Pay Commission take the increase in statutory holiday entitlement into account when recommending the future level of the National Minimum Wage. The Confederation of British Industry (CBI) has asked for the Low Pay Commission to be kept informed in its submission to the consultation. John Cridland, CBI deputy director-general summarised their recommendations to the Government when he said “This is good news for those staff who will see their annual leave increase but it will cost employers £4b a year. With the Government considering raising the National Minimum Wage in 2007, these extra costs must mean there is a smaller wage increase. Ministers must be mindful of hitting employers with a double whammy of extra costs.”. (CBI press release 11th Jan 2007).

Who is it going to benefit?

Low-leave employees are more likely to be female, work part-time and aged of 16-24 and non-white (there is marginally higher incidence of low-leave non-white employees than white)

Table 1: Distribution of low-leave employees by gender and employment status

Table 1 shows that the people who are most likely to benefit from the increase in holiday entitlement are women, especially those working part-time.

In Table 2 we have used our data from Jobwatch 2006 to show average hourly pay by occupation and have compared this with the dti’s data on the incidence of low-leave employees by sector. Low-leave employees are those employees who get less than 28 days holiday per year. Jobwatch is our annual survey of job vacancies in jobcentres in Greater Manchester.

Table 2: Incidence of low-leave employees by sector and average hourly pay by sector

Table 1 clearly shows that high incidence of low-leave corresponds to low average hourly pay. 49% of employees in the hotel and restaurant business have less than 28 days holiday a year. Our data from Jobwatch 2006 shows that average hourly pay for people with catering as their occupation is only £5.97 per hour. This is just 92 pence higher than the National Minimum Wage at the time of the survey and 62 pence higher than the National Minimum Wage from October 2006. Our data also shows that Shop Workers who have an average hourly wage of just £5.52 are also more likely to be low-leave workers, with 29% of those in the wholesale and retail sector getting holiday entitlements of less than 28 days. It is clear then that workers in low paying sectors are far more likely to be low-leave workers and stand to lose out on a sufficient increase in the National Minimum Wage in October 2007 due to a statutory increase in holiday entitlement in the same month.

We recommend that raising the statutory holiday entitlement from 20 days to 28 days should not be bartered for a lower increase in the National Minimum Wage. It is precisely vulnerable workers in the low paying sectors, which stand to benefit from the proposed increase in holiday entitlement. The Government is keen to ensure that business is not overburdened but what of the workers on low incomes whom both pieces of legislation are seeking to protect. If the proposed rise in the number of statutory holidays goes forward these workers will indeed benefit from the increase but they should not receive this at the cost of a loss of earnings. The National Minimum Wage must continue to increase faster than average earnings so that the minimum wage becomes a living wage.