Traditionally, most employees are paid a flat rate for holiday pay. This will be their normal weekly wage less any overtime, commission or other payments. However, in recent months there have been a number of landmark decisions which has completely changed this position.
The history
In the briefest of terms, the right to paid holiday was introduced but the government of the time did not set out how a weekly wage was to be calculated. Further legislation from Europe provided no further guidance. After the Williams v British Airways case, discussed at our blog dealing with commission and holiday pay, further challenges to the law were inevitable.
The cases of Bear Scotland, Hertel and AMEC
In all of these cases, employees took their cases to the Employment Appeals Tribunal (EAT) seeking a ruling on how a week's pay should be calculated. The EAT decided that, in the case of overtime which was mandatory, this should form part of the calculation of a week's pay. The same will no doubt apply for overtime that is not guaranteed but forms part of normal remuneration due to its regularity. Occasional overtime is not included.
What does this mean for employers?
The effect of the decisions is that employers will need to look very carefully at the issue of overtime payments and how they are made. If they find that their overtime worked is caught by these decisions then the employer will need to allow for overtime payments in future holiday payments.
Can claims be made by employees for back holiday pay?
The decision of the EAT seems to be against this idea. The Tribunal decided that the holiday pay affected would only be the first 20 days as this is what European legislation allows for. The additional 8 days will be paid at the normal weekly rate as will any additional discretionary contractual days. However, claims dating back three months may be seen.
Is there any good news for employers in this area?
Sadly not. The estimates are that holiday pay costs will increase between 2-4% and there is also income tax and national insurance to consider. There seems little doubt that the costs involved in staff taking holidays will increase for most employers. Whether this leads to employers being reluctant to sanction overtime or seeking variations to contracts of employment in relation to commission payments remains to be seen.
Summary
Our blogs on holiday pay have been brief and are designed to provide a quick oversight to changes in the law in this important area. If you would like to receive a more detailed note of the problems surrounding holiday pay please email info@chilternsolicitors.co.uk.
This blog is designed to give an overview of the law and should not be relied upon for advice in relation to any specific employment or staffing issue. If in doubt always seek legal advice.
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