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Holiday Pay - What to pay or not to pay, that is the question?


Posted on 20 January 2017

The calculation of holiday pay continues to be a contentious issue. Under EU law, every worker has the right to a minimum of four weeks paid annual leave, with a further 1.6 weeks paid leave under UK legislation.

The legislation states that each worker is entitled to a ‘week’s pay’ for each week of leave, but therein lies the problem - what constitutes a ‘week’s pay’?

Historically, the approach for holiday pay entitlement in the UK has been to award workers, with normal working hours, their ‘basic salary’ excluding payments for commission and overtime.

But is this enough?

In separate judgements (Bear Scotland Ltd v Fulton and others UKEATS/0047/13; White & Others v Dudley Metropolitan Borough Council [2016] 1300537/2015; Williams and others v British Airways plc [2011] IRLR 948 (ECJ); British Gas Trading Ltd v Lock and another UKEAT 0189/15) it has been decided that  commission and similar payments should be included in the calculation, and any aspect which is “intrinsically linked” to the performance of the worker’s job, along with compulsory overtime,  should be reflected in the pay a worker receives whilst on holiday.

So what considerations do employers need to take into account?

Whilst the extras to be included in holiday pay calculations are currently at the employers discretion, case law indicates that additional payments are likely to qualify as ‘normal remuneration’ for calculating holiday pay if:

  • They have been paid regularly.
  • They are intrinsically linked to the performance of the contract of employment by the employee.

The above two points may be interpreted also to include voluntary overtime, standby  and  call out payments, provided they have  been undertaken for such a long period and with such regularity that it has become part of the employee’s normal work and accordingly, part of their normal pay.

It is important to note that, it is only on the 4 weeks annual leave entitlement under the Working Time Directive, where these additional payments need to be paid, not the full 5.6 weeks leave paid under the UK regulations.

To muddy the waters further, there has been no guidance from any of the case law judgements, on the recommended period over which the holiday pay should be calculated, so advice should be sought on what may be most appropriate, as this may vary from employer to employer.

Where to now?

Employers have a number of options –

  • Do nothing but accrue a reserve for underpaid holiday pending clearer advice from appeal courts on cases or claims being made from your employees.
  • Look at restructuring your payment structures to include commission and guaranteed overtime based on 4 weeks holiday entitlement.  This could be configured as part of an annual pay review.
  • Contact an HR Services Professional to discuss your options.

If you are unsure about what your employees are entitled to, why not contact Viv Tolley in our HR Services.

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