What You Need To Need Know About Holiday Pay

With the holiday season now upon us it is a good time to ensure that you are up to speed with the recent changes in this area.

We have previously reported on two important cases which deal with the payment of overtime and commission during annual leave and the implications for employers (see Long Anticipated Decision From The Employment Appeal Tribunal (“EAT”) On Holiday Pay Announced and Tribunal Confirms Changes to Holiday Pay)  

In a nutshell, workers who have normal working hours and who earn commission which forms part of their regular remuneration and/or workers with ‘non guaranteed’ overtime should have this additional pay reflected in their holiday pay.

If you have workers who do earn regular additional payments such as overtime and commission you should now consider whether this should be included in their statutory annual leave entitlement of 4 weeks paid holiday.  The courts have not provided a definitive decision on what reference period is appropriate, i.e. what period should be used as an average for calculating holiday pay.  However, the guidance is that the period must be ‘representative’ and reflect the normal working pattern. This means that calculations will be considered on a case by case basis.

Once recent case which may also have an impact on holiday pay is Patterson v Castlereagh Borough Council (Northern Ireland Court of Appeal).  The decision in this case could potentially extend the payment of overtime to ‘voluntary overtime’ which had not previously been considered in the “Bear Scotland” decision (above).  The Court of Appeal in Northern Ireland has ruled that, in principle, there is no reason why voluntary overtime should not be included in holiday pay and the case was remitted back to Tribunal.

As to the impact of this case, we will have to wait and see as these decisions are not binding on the courts in England, Wales and Scotland.  In the meantime employers who regularly utilise overtime may wish to reconsider any alternative means of covering the work.   

If you need any assistance in deciding what should or should not be included in your holiday pay calculations please do contact us.

Running alongside this, as of the 1 July 2015 a 2 year cap is now imposed in respect of historical holiday pay claims.  This means that any claims for backdated holiday pay are now limited to a 2 year period.  Additionally, if there is any break of 3 months or longer in between claims for lost holiday payments this will break the series for historical claims.