February 18th, 2015 / Insight posted in

The Hassle with Holiday Pay

By Adam Flight Earlier this month the Employment Appeal Tribunal (EAT) ruled that when workers are on holiday, they should receive “normal pay”. So what does this mean? What this means, is that any payment made to an employee that is linked to their work or task, should be included in the calculation of holiday pay. These payments include any overtime, commission, bonus and any regularly paid allowances i.e. shift, travel etc. However, this is only applicable to the statutory fours week’s holiday and does not apply to the 1.6 weeks of public holidays or an employee’s full contractual entitlement (if greater). So how should you be approaching the subject of holiday pay? Our recommendation is that the sooner you start to put a process or policy in place, the better. Firstly, if you pay more than the statutory minimum, you should decide if it will be easier to pay all holiday at the new higher rate rather than have a cut off at 20 days. However, any Bank Holidays should be paid at an employee’s standard rate. Next you should decide, perhaps by including the thoughts of your employees in order to achieve a buy-in from the workforce, on what period of time you are going to use to work out the average for these additional payments/allowances – 12 weeks all the way up to 12 months. Make sure you budget for this increase in cost moving forward. As the year draws to a close, many businesses will be calculating next year’s budget. Don’t forget the enhanced holiday pay as this will only impact on your profit margin! You do have the option of doing nothing, until the law is settled. However, please ensure that you keep a close eye on developments and start to consider your exposure with a view to making any financial provisions for any potential future claims. Only time will tell as to the impact this will have on UK businesses but whilst it remains a hot topic in the news, it is likely to encourage workers to start to examine their payslips which may lead them to decide if they have been underpaid. If you’d like any support or advice on your holiday pay arrangements, please call us to discuss.