Following the March 2006 judgment of the European Court of Justice on the legality of rolled up holiday pay, the Department of Trade and Industry (DTI) has now updated its guidance on the Working Time Regulations to reflect the judgment.
In effect, the practice is now essentially considered to be unlawful and employers are advised to renegotiate contracts involving rolled up holiday pay for existing employees/workers as soon as possible so that payment for statutory annual leave is made at the time the leave is taken. However, where an employer has already given rolled up holiday pay in relation to work undertaken, and the payments have been made in a transparent and comprehensible manner, this can be offset against any future leave payments made at the proper time.
Only employers who have paid rolled up holiday pay in a way which was not transparent and clear to the employee are at risk of financial exposure as a result of this ruling.
The guidance can be found here