The Impact of the Recent Holiday Pay Ruling

Last week a new holiday pay ruling was passed by the Employment Appeal Tribunal that could impact UK businesses.

The Employment Appeal Tribunal (EAT) hears appeals from decisions made by Employment Tribunals. Its judgments are used to set precedents and may be used to support Employment Tribunal claims.

A court case surrounding a British Gas worker whose pay was made up of 40% basic pay and 60% commission, but while on holiday was only paid basic, led to other groups questioning their entitlements. Following this, a recent tribunal has ruled that businesses should reconsider how they evaluate holiday pay. The ruling means that working overtime could claim for additional and backdated holiday pay. It stipulates that all elements of an employee’s “normal remuneration”, including payments for non-guaranteed overtime should be considered when holiday pay is calculated.

Emily Cadman explains on ft.com that, “The European Working Time Directive says that full-time employees should have four weeks paid time off a year, and companies can choose to give more than this. But the directive does not define how holiday pay should be calculated. A series of recent rulings in the European Court of Justice concluded that employees are entitled to “normal remuneration” when taking leave, so regular extra payments such as overtime, allowances and commission needed to be considered, it said.”

Despite the ruling being passed, it is important to recognise the decision is likely to be contested by the Court of Appeal or referred to EU courts. Therefore, the final ruling could be years away.

Following this ruling, there are a number of options businesses can take to mitigate the implications of the ruling:

• Pay all leave at the same rate.
• Implement a tiered method of calculating holiday pay, with a different method of payment for a holiday over and above the standard 20 days.
• Pay a percentage of all non-guaranteed overtime undertaken by the employee reflective of their statutory annual leave entitlement. 
• Do nothing, which could result in a claim later on.

The full Employment Appeal Tribunal judgments relating to this ruling are available here.

Help and Advice:

For free and confidential advice contact the Acas helpline.

Alternatively, if you are a Sage customer you can gain access to HR advice services that can guide them on the specifics of this ruling. Payroll Sage Cover customers can access this service as part of their subscription, however non-Payroll Sage Cover customers can access this service by adding the Sage HR Advice subscription to their current contracts.