Is holiday pay sending you into a panic this Christmas?

A ruling last month by the Employment Appeals Tribunal (EAT) has sent employers, who take on staff on non-guaranteed overtime, into a bit of a panic.  The EAT ruled that any non-guaranteed overtime should be included when calculating holiday pay.  So what does this mean?

The problem lies with employers where staff are working on a low basic salary (say 40%) with the rest of their pay made up in commission (60%) and those where employers pay staff essential overtime.

The UK government has always stated that employers should use basic pay when calculating how much a worker should get paid while they are on holiday. This was outlined in the Working Time Regulations Act of 1998. It means that overtime and commission, which normally helps to increase average pay levels, is not included when calculating basic holiday pay. This puts the UK at odds with the European Working Time Directive, which doesn’t specify how holiday pay should be calculated, and suggests that overall remuneration should be taken into account.

The discrepancy between British and EU law came to a head earlier in the year when several cases were brought to the European Court of Justice by UK workers whose holiday pay was calculated using only basic pay.  Last month the EAT ruled in the workers’ favour, setting a precedent for how workers’ holiday pay will now be calculated. However, this only applies to the minimum four weeks’ holiday required by EU law and not the additional 1.6 weeks provided by UK regulations or any discretionary holiday on top of that.

In the meantime Vince Cable is setting up a task force under the Department for Business, Innovation and Skills (BIS) to look into the implications and some employment law practices are advising employers to assess their risk by assessing their potential claims under the ruling.

Some employers are sitting tight in the hope there will be a further appeal, while others are using this time, as per the advice from some employment law practices, to do some analysis in their own organsations to see how many of their employees are on non-guaranteed overtime.  However, it is unclear in some instances how employees will prove that the overtime they do is essential to their job.

So, if you are winding down to the Christmas break, maybe there is an opportunity for you to have a look at who might be eligible for recalculated holiday if this applies?

Wishing you all a very Happy Christmas from Hafton Consultancy.