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How much holiday you get is normally set out in your contract of employment. The statutory minimum is 5.6 weeks (28 days) which includes bank holidays. However, the following factors can affect the amount of holiday pay you are entitled to:

 

Overtime

Should overtime be included when calculating holiday pay?  .

There are three types of overtime: guaranteed overtime, non-guaranteed overtime, and voluntary overtime.

Guaranteed Overtime

This is where an employer is obliged by contract to offer and pay for overtime, even when the employee is not called to work overtime. In this situation, guaranteed overtime should be included when calculating holiday pay.

Non-Guaranteed Overtime

Non-guaranteed overtime occurs if an employer does not have to offer overtime, but when it is offered the employee is obliged to work overtime, therefore, it is required by the employer and it is intrinsically or directly linked to the worker work.

As a result, the EAT’s decision in Bear Scotland Ltd v Fulton and another, clearly shows that non-guaranteed overtime should be included as ‘normal remuneration’ when calculating holiday pay. .

Voluntary Overtime

Voluntary overtime is where an employer is not obliged to offer overtime and an employee is not obliged to work the overtime (free to refuse the offer of overtime by their employer).

In light of the recent case of East of England Ambulance Service NHS Trust v Flowers, the Court of Appeal expressly approved that if voluntary overtime has been paid over a sufficient period of time on a regular or recurring basis, voluntary overtime should be included as ‘normal remuneration’ when calculating holiday pay.

In addition to this, Dudley Metropolitan Borough Council v Willetts and Others held that out-of-hours standby payments and call-out payments should be included even though there was no obligation on the workers to participate in the out-of-hours standby rota.

However, what amounts to a ‘sufficient period…regular or recurring basis’ is a grey area. There is no guidance as to and is a question of fact for the tribunal to decide. In Willetts, the EAT agreed in this case that overtime worked one in every four or five weeks was sufficiently regular to count as normal.

 

Working Patterns

Employers can find it difficult to calculate an employee’s holiday pay especially when employees working patterns/remuneration differs.   

Generally, an employee should be paid holiday pay based on a week’s normal remuneration (weekly wage).

Current Law (Prior April 2020)

If an employee works different hours each week, then their holiday pay should be based on the average pay received over the last 12 weeks. 

For employees who carry out ‘shift work’, holiday pay is usually calculated by working out the average number of hours worked in the previous 12 weeks at their average hourly rate.

Law after 6 April Law 2020

After the 6 April 2020 the reference period for determining an average week’s pay will increase from 12 weeks’ to 52 weeks’.  Therefore, when calculating holiday pay, it should be based on the average pay received over the last 52 weeks, or the number of complete weeks for which the worker has been employed.

The government have amended the current reference period to ensure workers who do not have a regular working pattern throughout the year are not disadvantaged for taking holidays when their weekly pay might be lower. 

 

Commission and Bonus Payments

Do commission and bonus payments have to be taken into account when calculating holiday pay?

There is no definitive answer to this and as a result determining whether commission and bonus payments need to be taken into account when calculating holiday pay is difficult to determine.

The EAT and Court of Appeal found that the Working Time Regulation 1998 was at odds with the Working Time Directive. 

Although Bear Scotland did not deal with commission payments specifically, it is clear from the reasoning used in this case that commission payments and bonuses which are intrinsically linked to the performance of workers’ contractual duties have to be included in holiday pay calculation. This was then confirmed in British Gas Trading Ltd v Lock and another.

In British Gas, the Court queried whether those who received commission or bonus payments once a year would be included and should be calculated for holiday purposes. However, the court stated that “nothing in the judgement” was intended to answer such questions and therefore holds some ambiguity.  

It is important to review the arrangements which you currently have in place when dealing with commission and bonus payments.

 

Tips and Service Charges

Tips and Service Charges fall into the grey area, yet again.

Case law suggests that tips count as remuneration under the weeks’ pay provision (Employment Rights Act 1996) if the worker is paid their tips through their employer. However, if the worker is paid tips in cash by a customer and not by their employer then it will not count as remuneration under the week’s pay provision.

Although it seems logical that remuneration would be excluded if the worker is paid directly by the customer and not their employer, this point has not been addressed by case law and could be argued either way. 

 

Work-Related Travel

The Working Tim e Directive states that payments which are “intended exclusively to cover occasional or ancillary costs” in order for the worker to perform their tasks required under their contract will be excluded from holiday pay.

Therefore, expenses which reimburse the workers for costs (i.e. travel) incurred are excluded when calculating holiday pay.

 

Further Points for Consideration

  • When an employee takes sick leave or maternity leave, their annual leave will continue to accrue. If leave cannot be taken in the current holiday year, then they should be allowed to carry it over until they are able to take it. Alternatively, the employee may wish to factor their annual leave during a time which they were sick so that they will get paid for their leave at their usual rate.
  • Any statutory leave (5.6 weeks) must be taken in the leave year which it is due. This means that any untaken leave will be lost. Your Employer may allow a worker to carry forward unused holiday but they are not obliged to. There are exceptions to this rule where a worker has been unable to take their leave because of maternity leave or sick leave.
  • When an employee’s employment comes to an end any accrued but untaken leave must be paid to the employee.

 

Do You Have More Questions About Overtime, Commission and/or Holiday Pay?

Our employee law team are here to help with any query you may have. Get in touch today for advice or to begin legal proceedings.

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