2015 - It’s holiday season!

Now holidays are in full swing, it’s time to relax.  But, are you paying your employees the right pay for their holidays? You will know that here in the UK, employees are entitled to 28 days’ annual leave under the Working Time Regulations 1998, paid at their normal rate of remuneration, which is easy enough to calculate. However, the calculation for holiday has become more complicated if the employee earns overtime, commission or other payments in connection with their work following several cases that have been chugging through the appeal courts over the last few years and finally starting to reach a conclusion more recently.

Overtime and holiday pay

What many employers may not know about or, if they do, they may not understand the logic behind, is a recent decision by the Northern Ireland Court of Appeal that there is “nothing in principle” to prevent purely voluntary overtime from being included in holiday pay. To trigger its inclusion in the holiday pay calculation, the worker’s overtime must be “normally” carried out, and be an “appropriately permanent feature” of the worker’s remuneration.

Earlier this year, the Employment Appeal Tribunal held that a week’s pay when calculating holiday pay must include overtime that employees are required to work, even if the employer is not contractually obliged to offer a minimum number of overtime hours. This inclusion may be understandable, given that the employer is explicitly instructing the employee to do extra hours and so can be more readily understood to be, in effect, contractual.

Commission and holiday pay

In a case that has been all the way to the European Court of Justice and back to the UK for application, the Employment Tribunal has concluded that the UK’s Working Time Regulations can be read as if they are consistent with the European Working Time Directive so as to include commission payments in holiday pay calculations in respect of statutory holiday. The employer in this case has announced it intends to lodge an appeal to the Employment Appeal Tribunal, but meanwhile employers need at least to consider what to do if the appeal is unsuccessful and they would have to apply the current findings.

Claims for backdated pay

The Government recognised that these decisions may have resulted in some employers failing to pay the appropriate level of holiday pay, leading to significant claims for back pay by workers. As a result, the Government introduced the Deduction from Wages (Limitation) Regulations 2014 to limit any potential backclaims for holiday pay to two years for claims presented on or after 1st  July 2015.

Not sure what this might mean to you?  If you would like help in understanding your situation and what you should be paying your employees now in the light of these rulings, please contact us on 01582 883299.

 

Helen Skepper – Research and Communications Advisor
Su Allen HR