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Holiday Pay

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The law regarding the correct calculation of holiday pay has been the centre of attention for quite some time now.  Last week saw the decision from another headline case.

The current position

Employers should pay a worker their ‘normal remuneration’ whilst they are on holiday. This is to make sure that they don’t miss out financially whilst they are on annual leave (which could deter employees from taking holiday).

This means using the average calculation method, over the period of 12 weeks before that worker takes that particular period of holiday.  So employers need to find the average pay for that worker and pay them that.

What is “normal remuneration”?

The case of Lock v British Gas Trading Ltd, the Tribunal had already ruled that the following elements of pay ought to be included when calculating holiday pay:

  • Guaranteed overtime – that is overtime that an employer must offer to the worker and that the worker must work.
  • Compulsory overtime – overtime that the employer need not offer but if offered the worker must work it.
  • Commission – when intrinsically linked to their job role i.e. a car salesman.
  • Certain shift bonuses/attendance bonuses/performance bonuses etc.
  • Certain standby and call out payments etc.

What is the recent development in Lock v British Gas?

British Gas decided to appeal the decision of the Employment Appeal Tribunal which determined the commission element above (i.e. British Gas disagreed that commission should form part of a holiday pay calculation).

The Court of Appeal has confirmed that employers will have to pay commission as part of the calculation for holiday pay. This isn’t anything new given that the Employment Tribunal and the Employment Appeal Tribunal already ruled this previously. This means that it changes nothing at this moment in time and commission should be included within the calculation for holiday pay.

However, the decision of the Court of Appeal, is likely to be appealed again by British Gas to the Supreme Court (the final court of appeal), resulting in further doubt and delay so watch this space…

To summarise

Many employers remain unaware of the rules on holiday pay (which could still change). It is important that you consider how holiday pay is calculated going forwards to avoid potential expensive claims for underpaid holiday pay that may go back years.

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