25th February 2016

Holiday pay: where do employers stand now?

The statutory holiday entitlement that workers have under the Working Time Regulations 1998 (the Regulations) is 5.6 weeks leave in each leave year, and to be paid during that leave a weeks pay for each weeks leave.   Due to recent cases in the European Court of Justice (ECJ) and our own Employment Appeal Tribunal (EAT) there have been changes in the law which govern how much employers may need to pay workers when they take holiday.

For those workers with normal working hours on a fixed wage, it is relatively straight-forward as they are paid the same amount that would be paid normally. If they have irregular hours or pay employers use a 12 week reference period which is set out under the Employment Rights Act.

It is more complex when people are paid additional sums, for example, overtime or commission payments.

In the cases that have been taken to the ECJ, it has been ruled that workers should be receiving “normal remuneration” whilst taking leave, as this is what is set out in Article 7 of the European Working Time Directive (WTD).  The Regulations implement the WTD and they now need to be interpreted to give effect to the meaning of “normal remuneration”.

The practical result of this is that when employers calculate normal remuneration for their workers, to work out what they should be paid for their holiday pay, they will also need to take into account the following:-

  1. Commission
  2. Overtime
  3. Shift allowances and premiums

This list is not exhaustive and each instance will turn on its facts. There is still a debate about whether purely voluntary overtime should be included in “normal remuneration”.

In the most recent case of British Gas Trading Limited v. Lock and another, the EAT has only just recently dismissed British Gas’ appeal on 22 February 2016.   It upheld the previous ET decision regarding the way the WTR can be interpreted in order to comply with Article 7.  Therefore, commission should be included in holiday pay.

Employers need to decide how to work out what would be a worker’s normal remuneration. The Employment Rights Act uses a 12 week reference period, as mentioned above. Since the employer needs to choose a reference period which will be representative, this 12 week reference period may not be appropriate. The Advocate General in Lock suggested 12 months may be representative.   We are still awaiting a definite answer on what reference period will be appropriate.

The above issues have been rumbling on for many months now and in January 2015 new regulations were brought in to introduce a two year back stop period on most unlawful deduction from wages claims.   This was due to concerns about the number of claims that may be brought against employers for unpaid holiday pay.

If you require advice on this topic or any other employment law issue, please contact Linda Wilson on 01730 268 211 or .

N.B. Please note that the above information is a guide only and does not constitute legal advice. We recommend seeking specialist legal advice on your own particular circumstances.