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Update on holiday pay

Many readers will have seen that there has been yet another judgment in the long running saga on holiday pay, following the decision of the Court of Appeal in British Gas v Lock

In February 2016, the Employment Appeal Tribunal determined that it was possible to interpret existing UK legislation in line with the decision of the Court of Justice of the European Union; that commission should be taken into account when calculating holiday pay.  The Court of Appeal on 7 October 2016 agreed with that decision.  However, it is worth noting that the Court of Appeal stated that they did not find the decision ‘easy’ and British Gas is expected to seek leave to appeal to the Supreme Court.  There therefore remains the possibility that this decision could be overturned in due course


Calculation period?

The Advocate General in Lock had suggested that holiday pay calculations could be based on an average of the previous 12 months’ earnings, but the ECJ declined to make any ruling on this, leaving it instead to the national courts to determine. 

Another popular suggestion would be to use the previous 12 weeks’ pay, as would be the case with workers who do not have ‘normal weekly pay’.  However, this would potentially cause significant discrepancies for workers with seasonal variations in pay, and there is always the risk that (in the absence of any guidance on this point), you could end up paying too much or too little, and still be at risk of claims.

However, the Court of Appeal did not give any guidance as to how holiday pay should be calculated, including what reference periods should be used, saying that 'nothing in this judgment is intended to answer’ these questions.  We are unfortunately therefore no further forward on this point as a result. 


Way forward

Given the above, it remains difficult to provide any definitive advice on the way forward at the current time.  It has been suggested that the Working Time Regulations could be one of the areas of EU law which the government may want to repeal or amend following Brexit, whilst at the same time Theresa May has said that existing employment rights will be guaranteed.  There therefore remains significant uncertainty as to what will happen in the short to medium term.   

Our advice therefore remains that it may be sensible not to make any changes to the way in which holiday pay is calculated at present, but to ensure that you have made provisions in your accounts for any potential claims which may arise.  With that in mind, it is worth remembering that:

  1. The Court of Appeal has made clear that the decision applies only to ‘contractual results-based commission’;
  2. Commission only needs to be taken into account when calculating the minimum four weeks annual leave under the Working Time Directive, and not the additional 1.6 weeks afforded under UK law, or to any additional contractual holiday which you may award;
  3. Claims brought on or after 1 July 2015 can only be made in respect of payments of holiday pay which were due within the two years prior to the date on which the claim is presented.


Overtime

Finally, it is worth remembering that guaranteed overtime and non-guaranteed contractual overtime should be taken into account when calculating holiday pay.  If there is a ‘settled pattern of work’ so that it has become part of ‘normal remuneration’, then it is likely that voluntary overtime should also be taken into account.

If you need any further advice please call Gemma Sherbourne on 0113 220 6341.
  

About the Author

Gemma Sherbourne

Legal Director

Gemma is an experienced employment lawyer, providing advice for a variety of clients from senior executives…

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