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Employment Law - Holiday Pay Calculation Changes

Author: Joan Finch, J Finch & Associates Published: 20th June 2016 16:53

Holiday photo from Kefalonia by Kate Towerzey


Employment law is constantly changing and over the last couple of years there is has been a lot of planned changes rolled out by the UK Government, with the biggest change in Family Friendly Employment Law we have seen for a long time with the introduction of Shared Parental Leave. The impact of this change has been nowhere near as significant as first expected and anticipated as employers have had the opportunity to gain an understanding prior to the planned changes coming into force. 

There is one area of Employment Law which has probably caused the most issues and concerns, kept employers in suspense as to the how’s and the what’s and who would of thought it, yes it is holiday pay.  This area of Employment Law has changed significantly over recent years, and to some it may seem to be a constantly moveable feast.

The changes to holiday pay result from s decision made by the European Court of Justice (ECJ), which originated by employees challenging how their employer calculated their holiday pay with in the UK court system.  So here goes to a step back in time and how it all started.

Back in 2011, in the case of Williams and other v British Airways plc, ECJ held that remuneration should not be limited to basic remuneration, albeit the entitlement was under the Aviation Directive (2000/79/EC). Ultimately the ECJ upheld that remuneration which is intrinsically linked to the performance of tasks which workers are contractually obliged to perform, should be eligible to be included for the purposes of calculating holiday pay.

You may well be asking why I have started here. Well, you could say this is where the holiday pay challenge actually started.

So let’s move forward in time to May 2014. This is where Unison won a landmark case of Lock v British Gas, whereby the ECJ ruled that workers must receive normal remuneration when they are on annual leave, where their pay is formed of basic pay and commission.

Subsequently, in November 2014 in the case of Bear Scotland v Fulton, the decision it handed down in its judgement was that employees/workers are entitled to be paid a sum of money to reflect normal non-guaranteed overtime as part of their annual leave payments.

The overriding principle is that the employee/worker should not be financially worse off or disadvantaged by taking annual holiday.

Now at this point I could go on to say how, when the Working Time Directive was implemented into domestic law through the Working Time Regulations, they were clearly not in sync, however do you need to know that or you may not want me to bore you with that, but you do need to understand the impact and how to calculate holiday pay accordingly. Therefore, what you actually need to know is how this affects you as an employer.

Essentially this decision changed how holiday pay is calculated forever, with the fundamental objective being that it must reflect ‘normal pay’. This only really impacts if employees have lots of various payments i.e. overtime, bonus, commission or allowances or works various hours each week and this changes from week to week - commonly known as irregular hours. Irregular hours can be based on the calculation of 12.07% of hours worked. Where there are various payments, a rule of thumb calculation would be an average of the previous 12 weeks.

To assist you in calculating holiday, there is a helpful calculator on the Gov.UK website. You can follow the link here or if you wish to discuss your holiday pay concerns please feel free to give us a call.

As a company you will want to ensure you have all the correct documentation in place to support your business at present and in the future, therefore if you have concerns or want to discuss your current and future contract of employment, employee handbook, HR policies and procedures, here at J Finch & Associates Ltd we can provide you with friendly practical advice and the tools to support your business. 

You can contact us by phone on 0330 2230158, by email on enquiries@JFinch.co.uk or visit us at J Finch Associates website

Article by Joan Finch of J Finch & Associates Ltd

Thanks to Joan our AboutMyArea/EN9 editorial contributor for this informative article on holiday pay changes. Check out Employment Law section in the AboutMyArea Business Zone to read more of her articles.

Joan is an award winning, highly experienced, commercial, self-motivated HR professional who has operated within the sectors of Retail, Hospitality and Catering, specialising in Employees Relations. Joan is now the proud owner and creator of J Finch & Associates Ltd.  Joan's career spans over 10 years, and has broad experience within Human Resources, with initially being a HR generalist covering all aspect of HR from Recruitment, learning and development, training, Employee Relations, redundancy, restructures and TUPE. Since 2008 she has specialised in Employee Relations applying a commercial and practical approach to all ER related issues. 

Photograph by AboutMyArea/EN9 Site Editor Kate Towerzey taken in Kefalonia. 

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