The Employment Appeal Tribunal ruled at the end of last year on what should be taken into consideration when calculating holiday pay.
It is now apparent that The Bear Scotland vs Fulton case is not going to be appealed so we would now like to bring you up to date with the main principles emerging and offer some further advice and guidance.
The recent change only applies to the 20 days holiday allowed under the European Working Time Directive (sometimes know as ‘euro days’) The EAT suggests that these 20 days should be the first 20 days taken in the leave year. Any holidays in excess of 20, either the additional 8 days provided for under UK law, or under the contract of employment, are unaffected by the recent legislation.
Employers have generally calculated holiday pay using a worker’s normal basic pay; however the judgement now means that that overtime which is routinely worked and some other payments received should be included when calculating Euro Leave holiday pay.
The Tribunal considered and confirmed that holiday pay should include non-guaranteed overtime (which is overtime the employer was not obliged to provide, but, when it was provided, the worker was contractually obliged to do ) and pay that is ‘intrinsic’ to the performance of the work.
In the light of this legislation employers now need to decide how they are going to respond to this.
What should employers do now?
- If employees are regularly working overtime, it is likely that overtime is part of their normal hours and should be taken into account when calculating Euro Leave holiday pay.
- Ensure that holiday pay reflects overtime and other payments for the 20 days annual leave to which they are entitled under EU law, but not the extra 8 days holiday under the WTR or additional days provided by the contract of employment. You can, of course, choose to pay the full holiday entitlement at the higher level voluntarily if you wish.
- Take into account commission earned by the employee where it is permanent enough to form a normal part of pay
- Include other aspects of pay that are ‘intrinsic’ to the performance of the work such as shift premiums, night workers allowances, responsibility allowance, on call/stand by payments, bonus payments based on individual productivity and travel time allowances for getting to and from work
In summary the key is to include all pay (which has a material impact on the level of average pay received by the employee over a representative ‘reference period’ (normally 12 weeks) before the holiday is taken), in the holiday pay calculation
If you would like to discuss this issues further and how it may specifically impact your business please call.