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Employment Law - Holiday Pay Changes

Author: Joan Finch, J Finch & Associates Published: 13th November 2014 14:57
Myrtos Beach in Kefalonia by Kate Towerzey

Employment Law is constantly changing, and this month is certainly no different.  Following on from my previous article on Annual Leave Entitlement you were informed there were some pending decisions to be made around how holiday pay is calculated. 

Over recent months, there have been a number of decisions made which will significantly financially affect employers because of how holiday pay should be calculated and what should be included.  Ultimately the respective courts have concluded that holiday pay should, in essence, reflect normal remuneration. 

Two decisions have recently been made in the European Court of Justice (ECJ), which concluded that the following payments should be included within holiday pay:

  • Allowances
  • Commission Payments

The above should be included in annual leave payments if it is defined as normal remuneration, is intrinsically linked to the performance of the tasks, or would need to have some regularity and similarity to it.

The most recent decision made 4th November 2014 at the Employment Appeal Tribunal (EAT) concluded that Overtime guaranteed or not should also be included when calculating holiday pay, with the key points being as follows:

  • Workers are entitled to receive holiday pay which reflects the normal non-guaranteed overtime.
  • This applies to the statutory entitlement of 4 weeks as detailed in the Working Time Directive (WTD) not the full 5.6 weeks entitlement under the under the Working Time Regulations (WTR).
  • Claims for arrears of holiday pay will be out of time if there has been a break of more than three months between successive underpayment (subject to the reasonable practicable test).
  • Travel time payment, which exceeds expenses incurred and so amounts to additional taxable remuneration, should be reflected when calculating holiday pay.

The EAT gave permission to appeal to the Court of Appeal.

The over-riding point to remember here; is that when looking at what an employee earns, and how this would apply when calculating holiday pay.  An employer would need to consider for example overtime, commission and travel allowance to be part of their holiday pay - we must note that it should be part of the employee's normal remuneration, or be intrinsically linked to the performance of the role, and would need to have some regularity or similarity to it.

Ultimately the employee should not be financially worse off when taking annual leave.

Following on from the EAT decision, as detailed on http://www.gov.uk/ Vince Cable, Business Secretary has said: "Government will review the judgement as a matter of urgency.  To properly understand the financial exposure employers face.  We have set up a task-force of representatives from the Government and business to discuss how we can limit the impact on business.  The group will convene shortly to discuss the judgement".

So what should an Employer do now?

In theory, due to the fact there is still legislation to work through and there is still the possibility of an appeal - albeit this is mainly more around the point of arrears or backdated pay - some might say wait to see what happens next.  However this would not help a company to prepare for the pending changes practicable through, for example, managing the process with employees, contracts of employment or financially, as going forward calculating holiday pay should be reflective of what amounts to "normal remuneration".

Therefore, if you are concerned over the potential impact these changes may have on your business we are here to help please contact us on 03302230158 or enquiries@JFinch.co.uk  and we can assist you in undertaking a full assessment of where you are and guide you through the next steps.

Article by Joan Finch of J Finch & Associates Ltd

Thanks to Joan our AboutMyArea/EN9 editorial contributor for this informative article. Check out Employment Law section in the 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.

For more information on Human Resources, Employee Relationship and Employment Law issues you may like to take a look at J Finch & Associates website: http://www.jfinch.co.uk/ or call 0330 2230158.

When contacting J Finch & Associates please let them know you found their details on AboutMyArea website!

Photograph above by AboutMyArea/EN9 Site Editor Kate Towerzey of Myrtos Beach in Kefalonia in the Greek Islands.


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