Where the fixed-term agreement is not genuine or exceeds one year
If an employer has incorrectly paid annual holiday pay on a pay-as-you-go basis, after 12 months’ continuous employment, the employee will become entitled to paid annual holidays, and any amount paid on a pay-as-you-go basis may not be deducted from the employee’s annual holiday pay.
Examples of circumstances where this occurs are:
- where a fixed-term agreement was not genuine
- where a fixed-term agreement was for a period of greater than 12 months.
Issues to consider with pay-as-you-go arrangements
Fixed-term agreements are, in some cases, linked to the completion of projects. In these circumstances, there is a risk to the employer that the fixed term will exceed 12 months, at which time the employee becomes entitled to paid annual holidays, despite having already been paid on a pay-as-you-go basis.
Therefore, pay-as-you-go arrangements are not recommended where it is possible that the employment will last longer than 12 months.
You should seek to clarify entitlements and renegotiate the relevant employment agreement as soon as it appears likely that a fixed-term arrangement will unexpectedly last more than 12 months.