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Holiday pay should now include payments for regular overtime and regular commission.
[Updated for 2017]
We look at October 2014’s Employment Appeal Tribunal (EAT) decision that says overtime should be included when calculating holiday pay (the combined cases of Bear Scotland vs Fulton, Hertel vs Wood and Others, and Amec vs Law) and the latest decisions (2016/2017) about commission payments in Lock vs British Gas.
Calculating the amount of pay an employee or worker should receive when on holiday used to be fairly straightforward. However, recent decisions have made the calculation of holiday pay more complicated, and no doubt more expensive for employers.
When calculating employee/worker holiday pay, the following elements used to be included:
This decision was to be appealed but has since been settled out of court instead – it is not binding as it was only made at an employment tribunal.
1. In Lock v British Gas, Mr Lock was a salesman whose pay consisted of basic pay and commission. The commission fluctuated (based on sales achieved) but on average it accounted for 60% of his pay. He only received basic pay while taking holidays. The Advocate General of the European Union agreed Mr Lock’s holiday pay should include an average sales commission and recommended this decision to the ECJ who in May 2014 agreed.
The Court said that any “aspect which is linked intrinsically to the performance of the tasks which the worker is required to carry out…. and in respect of which a monetary amount is provided must be taken into account” for the purposes of calculating holiday pay. This is to ensure that workers are not deterred from taking leave because they could not afford to do so.
The ECJ added that a national court should determine the method of calculating the average Sales Commission. (The Advocate General said that Mr Lock’s average Sales Commission over the last 12 months appeared to be an appropriate amount that should be included in his holiday pay). This case returned to the Employment Tribunal in February / March 2015, to address issues such as the appropriate reference period when calculating holiday pay.
At the end of March 2015, the ET found that workers who are paid commission should receive holiday pay at a rate reflecting normal income (i.e. including commission).
However, in May 2015, British Gas lodged an appeal so the case went to the Employment Appeal Tribunal in December 2015. British Gas were appealing, partly, on the basis that the ET was wrong to decide that Bear Fulton (below, about overtime) had any bearing on how holiday pay is calculated regarding commission. The EAT, in February 2016, rejected British Gas’ arguments and said the Working Time Regulations can be interpreted to provide that holiday pay must include commission payments. The EAT also said that “if Bear Scotland had been wrongly decided then it must be for the Court of Appeal to say so”.
British Gas appealed this and the case went to the Court of Appeal in mid July 2016; in October 2016 the Court gave their decision, which is: they agreed with the EAT and said the Working Time Regulations can be interpreted to include contractual results-based commission in holiday pay, as Mr Lock’s holiday pay should be based on his normal renumeration which included earnings from his commission. The decision only relates to the first 4 weeks of annual leave given under the Original Working Time Regulations and not the extra 1.6 weeks that is given in the UK (or any additional contractual holiday entitlement). The Court did not address the question of the appropriate reference period to use to calculate the commission element of statutory holiday pay. It’s understand that British Gas may now appeal to the Supreme Court so watch this space! In March 2017 it was announced that the Supreme Court have refused British Gas the permission to appeal the Court of Appeal’s decision (that contractual results-based commission should be included in holiday pay). The case will now go back to a Tribunal to due the actual amount due to Mr Lock in back-dated holiday pay.
2. In Summer 2014 the Employment Appeal Tribunal heard 3 other cases – Bear Scotland Ltd v Fulton; Hertel (UK) Ltd v Wood; Amec Group Ltd v Law – the claimants successfully argued in their employment tribunals that their employers should have included regular, but non-contractual, overtime in their holiday pay.
At the end of October the EAT announced their decision and said that regular, non-guaranteed overtime (i.e. overtime the employer does not have to offer but if it does the employee must work it) should be included when calculating holiday pay.
In these cases, overtime was required by the employers and was regularly required. And other payments that form part of normal remuneration, as described by the ECJ in BA v Williams, like shift allowances and travel allowances should be included, following the European Court of Justice decision earlier this year that the UK’s method of calculating holiday pay is too narrow and does not comply with EU law. EU law requires that employees receive their “normal” pay when taking holiday – meaning any payments that are “intrinsically linked to the tasks performed” in doing their job should be included.
What is “normal” – this includes a time element as payment has to be made for a sufficient period of time to justify the label “normal”. What is “regular” – this is not clear, however there has to be a difference between an employee who works beyond their basic hours every week and an employee who works the odd extra hour only a few times a year.
3. In June 2015 the Northern Ireland Court of Appeal heard a case about voluntary overtime (which the employer has no obligation to offer and the employee no obligation to do) in Patterson v Castlereagh Borough Council. Their decision was that if a worker “comes to expect a certain level of pay as normal then he should receive that during his holiday period”. What the definition of “normal” is, they felt was irrelevant, the issue was the amount of normal pay (not how it is composed). This decision is not strictly binding on England and Wales, but is usually seen as persuasive. The case has been sent back to a Tribunal to assess the overtime worked within a ‘suitable reference period’ (not defined).
4. In April 2016 an English court reached a similar decision in White v Others v Dudley Metropolitan Borough Council. Dudley Council employed tradesmen to work on their social housing portfolio who were invited to work on a Saturday on a voluntary basis and could voluntarily go on standby to handle repairs and emergencies every 4 weeks. The tradesmen bought a claim for unpaid holiday pay arguing that the voluntary overtime and standby work was so regular that if formed part of their ‘normal’ work; the Council obviously argued that they were under no obligation to do this extra work. The Judge agreed with the tradesmen that voluntary overtime, voluntary standby and voluntary call-out payments should be considered ‘normal’ pay if undertaken with ‘sufficient regularity’ and so should be used when calculating holiday pay (the tradesmen had done this voluntary work for a number of years). The question still exists as to what is ‘sufficiently regular’? Again this decision is not binding as it was made in the first tier Tribunal, but it is persuasive.
Dudley Council appealed and in August 2017 the EAT confirmed that voluntary overtime was ‘normal’ remuneration where it is paid over a sufficient period of time on a regular basis. The EAT did not offer further guidance on what level of regularity or frequency is required for the payment to qualify as ‘normal’. In this case the EAT found that payments made over several years at a rate of 1 week in every 4-5 weeks was regular. The Council may appeal this decision to the Court of Appeal.may well appeal of course!
Holiday Pay should now include payments:
So, employers now must make a decision as to whether:
Employers could now:
In December 2015 it was announced that the Police Federation of England and Wales has agreed to include overtime in holiday pay for Police Officers from 1st January 2016. The agreement made includes all forms of overtime, unsocial hours payments, acting up allowances, away from home allowances. Police forces will be required to pay a 3-month arrears as a one-off payment and can decide to pay a flat rate of £60 per officer per month, or the actual entitlement.
In March 2016, the South Central Ambulance Service, operating in Hampshire, Oxfordshire, Berkshire and Buckinghamshire, agreed to a claim by UNISON that employees’ holiday pay should include payment for the regular occasions when ambulance crews need to attend a patient after their shift has officially ended (called an “overrun”). The payments will be backdated to April 2015.
And in June 2017, the ET ruled that ambulance workers (at East of England Ambulance Trust) compulsory overtime in relation to shift and shit over-runs should be included in the calculation of holiday pay. This overtime was not guaranteed but was required to be done, and as it was an essential requirement of their job it should be included in holiday pay calculations. The ambulance workers had also wanted that any voluntary overtime they did (their choice) should be included in the calculations too but the ET disagreed as there was no obligation for the workers to do this overtime, so it did not need to be counted.
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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