According to the recent case of British Airways v Williams, employers must include all elements of normal remuneration in holiday pay for staff.
In this case, British Airways was told it had to pay its pilots holiday pay that included flying pay supplements as well as basic pay.
In fact, the only sums that could be excluded were those intended exclusively to cover expenses.
Whilst this case focused on pilots who have their own special employment regulations, the decision is also important for all other workers, whose annual leave entitlement is set out in the Working Time Regulations 1998.
But don’t worry if you haven’t been paying your staff more than their basic pay for annual leave so far as this is a recent change. In the earlier case of Bamsey, the Court of Appeal found that holiday pay does not need to include payments for compulsory overtime. However, the Williams case does now seem to have moved the goal posts.
Now as an employer if your employees’ holiday pay does not correspond to their normal remuneration – including things such as compulsory overtime, commission, bonuses and allowances – you could be considered to be in breach of the law.
If necessary, remuneration should be calculated on the basis of an average over a representative period, but one way or the other you will need to get this right.
If you are at all concerned about how to calculate correct holiday pay or you have any other questions regarding annual leave and employee contracts, contact our Employment & HR team.