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Calculating the amount of pay an employee should receive when on holiday used to be fairly straightforward, with the exception of the interaction between holiday and sick pay. However, recent decisions have made the calculation of Holiday Pay a little more complicated.
[Updated in 2015]
When calculating employee holiday pay, the following elements should be included:
When the Working Time Regulations were introduced in 1998, the Government at the time decided that a week’s pay (to determine and calculate holiday pay) should be calculated in line with the Employment Rights Act; and no other definition was used.
However, recent developments at Employment Tribunal have clouded matters.
Mr Neal had complained that his holiday pay was calculated on the basis of his basic 7 hour shifts, though he usually worked at least 9 hour shifts. It was not entirely clear whether these extra hours were compulsory or voluntary and his contract stated he could be required to work overtime “when necessary”. He bought a claim for the extra holiday pay he felt he was entitled to under an ‘unauthorised’ deduction of wages laws. He had never worked a shift of 7 hours, he was always rostered for longer shifts.
The Tribunal said EU law requires that a worker’s holiday pay should include salary but also any element of remuneration “intrinsically linked” to the tasks required under the worker’s contract that he/she must do – including overtime where it is neither guaranteed or compulsory, and even where it is voluntary. The Tribunal felt that holiday pay should represent what the worker would have received had they been at work. So, if they regularly carry out overtime or receive unsocial hours shift allowances / premiums these additional payments need to be included.
The Judge ruled that the extra hours should be taken into account, by averaging his totally remuneration over the standard 12 week reference period. The Judge decided these ‘unlawful’ deductions had been in a series so the claim could be backdated to Mr Neal’s employment start date of 2007.
This decision was to be appealed but has been settled out of Court instead – and is not binding as it was only made at an Employment Tribunal – so nothing is certain for the future, until the final outcome.
Other recent decisions:
This does suggest that the UK may be heading towards calculating workers holiday pay by looking at their average earnings in the 12 weeks leading up to their holiday. And we wait to see the latest outcome of the Lock v British Gas with regard to how to calculate the average Sales commission to be included in the annual leave payments. But, watch this space…
See our updated post on this subject here.
If you are an Employer and need ongoing professional help with any staff/freelance issues then talk to Lesley at The HR Kiosk – a Human Resources Consultancy for small businesses – our fees are low to reflect the pressures on small businesses and you can hire us for as much time as you need.
Please note that the advice given on this website and by our Advisors is guidance only and cannot be taken as an authoritative or current interpretation of the law. It can also not be seen as specific advice for individual cases. Please also note that there are differences in legislation in Northern Ireland.
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