Landmark ruling on Holiday pay

As you may have been aware in the press a judgement has been handed down on 4 November 2014 in relation to the calculation of holiday pay.  We have further information on how this ruling will apply to businesses.

The background of the cases support the encouragement for employees to take their annual leave, without suffering a detriment to their ‘normal remuneration’.  The cases have clarified ‘normal’ remuneration to include any payments which are intrinsically linked to the tasks workers are required to perform under the contract, specifically with the Bear Scotland v Fulton and others stating that overtime which an employee must work if offered should be considered part of ‘normal remuneration’.  In addition, taxable payments for travel time (Not expenses) should also be included.  The Lock v British Gas Trading case held that commissions must be included in holiday pay.  This ruling only applies to the basic 4 weeks leave as determined under the EU Working Time Directive (not the additional 1.6 weeks under the UK Working time regulations).  It also does not apply to any additional company holiday pay

The matter of how far back workers can go when making a claim, has been confirmed at the three months gap between periods of unpaid holiday paid and any claim being made.  However it is likely that the judgement will be appealed to the court of appeal.

What does this mean in practice?

  • Consider precisely what amounts to ‘normal remuneration’ and therefore part of the calculation for holiday pay.
  • Consider if you wish to pay the higher rate for the additional 1.6 weeks leave, or any company holiday pay.
  • Consider the structure of the working arrangements in order to manage the liabilities.  Is overtime purely voluntary, or infrequent, or the use of agency staff for busy periods.

This has a complicated impact on organisation and the future calculation of holiday pay.

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