Holiday pay is a hot topic for lawyers and HR professionals with a number of recent court decisions clarifying what employers should pay, particularly where employees work overtime or receive commission
The European Angle
The right to holiday pay comes from European law (although the UK has brought in our own rights to comply with EU law).The right is a health and safety measure. In other words it is considered to be important for the health and safety for workers for them to take all their paid holiday entitlement. Setting the right up in this way gives it a 'gold plated' status which explains why many of the recent court decisions can be said to be so pro employee.
The right to paid holiday is, at its heart, a simple right. In particular:
- Workers have a right to 5.6 weeks paid holiday per year. In the case of a worker who works 5 days a week this gives 28 days per year
- When a worker takes a week’s paid leave they are entitled to a week's pay
So - a week’s pay for a week’s holiday. Simple? You would have thought so. However, the complexity comes from payment arrangements that are not run of the mill. For example, how does an employer deal with commission, overtime and other types of payment?
Recent Court Decisions
The two most recent decisions deal with commission and overtime. Both cases made headlines as they may affect millions of workers.
The key decisions are as follows:
Lock -v- British Gas
Mr Lock is employed by British Gas in a sales job. About 60% of his pay comes from commission on sales he concludes for British Gas. When he takes a week’s holiday he is not out and about earning money for British Gas and so he loses commission down the line from having a week away from work. Mr Lock brought an Employment Tribunal claim to say that this meant that he was underpaid holiday pay. The Tribunal referred the case to the European Court for guidance. The Court decided in Mr Lock’s favour. The Court emphasised that holiday pay arrangements should not discourage workers from taking paid holiday. The fact that Mr Lock lost commission at a later date when he took holiday was thought to discourage him from taking holiday. This was not considered to be a good thing given that the right to paid leave is a health and safety measure. This means that British Gas will need to find a method to provide Mr Lock with additional pay when he takes holiday to compensate him for the commission he loses by being unable to conclude deals while he is away.
Bear Scotland -v- Fulton
This case deals with whether holiday pay should include an element for overtime where workers regularly work overtime. Again, the court decided in the worker’s favour by ruling that holiday pay should be calculated according to the worker’s normal weekly pay (including overtime pay).
However the decision only covers overtime which
- Is not guaranteed (ie the employer can chose when to offer overtime) and
- Is compulsory (ie the workers contracts required them to work overtime if it was available)The decision does not cover voluntary overtime which may well be treated differently in future cases.
The implications for Employers
All this is likely to increase expense to business. The biggest danger lies from workers who bring claims for a shortfall in holiday pay going back several years. Such claims could be crippling for some businesses.
What Employers Should do
Employers should be aware of these recent decisions and the way the wind is blowing generally. Look carefully at how you work out holiday pay with emphasis on 'non standard' types of pay (ie overtime, commission, shift premiums, bonuses etc.). Consider whether your procedures need changing to take account of the recent decisions. If in doubt seek advice from a good lawyer.
Andrew Spencer can be contacted by email at firstname.lastname@example.org or by phone on 01603 724671.