February 18th, 2015 / Insight posted in

Holiday pay and overtime – Judgement is delivered

By Linda Powell The Employment Appeal Tribunal (EAT) has decided that holiday pay should include commission and overtime. The EAT has today handed down its eagerly awaited judgement this morning with the headlines emerging on the three conjoined holiday pay cases. The full judgement is awaited for legal experts to pore over and it is expected that an appeal will be forthcoming. The legal issue to be decided was whether holiday pay should include non-guaranteed overtime and other payments/allowances which regularly form part of an employee’s pay. It was argued that failure to include these payments within salary calculations means that employees are dissuaded from taking adequate rest and recuperation away from the workplace, because they cannot afford to suffer a drop in salary. This defeats the intention of the Working Time Regulations to protect the health and safety of the individual employee. The other burning legal issue decided by the EAT was how far back potential claims for holiday pay can go. A claim for backdated holiday pay which includes overtime and other payments/allowances could extend back to the beginning of the employees’ employment, or the latest, 1 October 1998 (the date the Working Time Regulations became law in the UK). However, the lawyer who represented the employers in this case has given some comfort to employers following the judgment. It is understood that the EAT has limited the scope for different holiday pay periods to be linked together as one long on-going series of deductions for historic claims. This finding is thought to significantly limit the scope for such claims in the future and the future liability for companies. Back in our June factsheet, we recommended that businesses should urgently review their workers’ pay to assess whether they receive any variable payments such as allowances or commission during the normal working week. If they do, it is advisable for employers to think about averaging out any variable payments across the financial year and factoring it into holiday pay calculations. That way, the business can minimise any risk of a legal challenge by its staff on the back of this case, and limit their on-going liabilities. It is suggested that if a worker is averaging £1000 per week in commission, a week’s holiday pay should include the basic salary and an additional £1000 of anticipated commission earnings OR, use the last 12 weeks actual commission earnings as an average. Employers are advised not to change the way they calculate, but follow the same consistent approach with all affected workers’ commissions, meaning they are not disadvantaged when they take leave. Other strategies for protection include whether you have legal expenses insurance in place. Employers should also think about collecting relevant documents as evidence if they have concerns about a claim. If you would like to discuss this or any other topic, please do not hesitate to get in touch with the Legal team or our HR consultants.