New calculations for holiday pay – what you need to know
You will have heard that recent court judgments should now be considered when calculating holiday pay. In addition to the current way of calculations, the rules employers and workers follow to calculate holiday pay may need to be updated.
- Guaranteed* and normal Non-guaranteed** overtime is to be taken into consideration when calculating the employee’s statutory holiday pay entitlement.
- At time of writing there is no case law to say voluntary overtime needs to be taken into account.
- Commission is to be factored into statutory holiday pay calculations.
- Work-related travel may need to be factored into statutory holiday pay calculations.
- Entitlement to holiday pay will continue to accrue during sick leave.
- There are different rules for calculating holiday pay depending on the working patterns involved.
- Workers must take their statutory paid annual leave allowance and can only be ‘paid in lieu‘ for this when their employment ends.
*What is ‘Guaranteed’ overtime?
Guaranteed overtime is where the contract obliges the employer to offer and pay for agreed overtime. Guaranteed overtime must be included within the calculation of holiday pay.
**What is ‘Non-guaranteed’ overtime?
Non-guaranteed overtime is where the contract does not oblige the employer to offer overtime but if they do then the worker is obliged by the contract to work overtime. On 4th November 2014 the Employment Appeal Tribunal made a ruling in the case of Bear Scotland v Fulton which covers how holiday pay should be calculated when non-guaranteed overtime is worked.
The judgment sets out that:
- Workers should have their normal non-guaranteed overtime taken into account in calculating their holiday pay.
- Anybody making a claim must have had an underpayment for holiday pay that has taken place within three months of lodging an employment tribunal claim.
- If a claim involves a series of underpayments, any claims for the earlier underpayments will fail if there has been a break of more than three months between those underpayments.
- Only the 4 weeks’ annual leave entitlement under the original Working Time Directive are covered by this judgment, rather than the full 5.6 weeks’ leave provided by the Working time Regulations in the UK.
This judgment may have an impact in situations where non-guaranteed overtime is carried out by workers on a regular or consistent basis.
What is Voluntary Overtime?
Voluntary overtime is where the employer asks the worker to work overtime and the worker is free to turn down the request. Voluntary overtime has not been directly considered by any recent judgments, so there is currently no case law to suggest that voluntary overtime needs to be taken into account when calculating holiday pay.
Is where ab employee receives either a fixed fee or a percentage for making a sale and which makes up part or all of their earnings. On 22 May 2014, the European Court of Justice heard the case of Lock v British Gas Trading Ltd and ruled that commission which a worker would normally earn should be factored into holiday pay calculations.
This ruling has been referred back to the UK to specify how holiday pay including commission should be calculated. Until this has taken place, there will be no definitive legal answer about how the calculations should be made, or how/if claims can be backdated.
Work-related travel can mean different things in different roles but usually means any travel made for work purposes that is not a part of the employee’s journey from home to their usual place of work. On 4 November 2014 the Employment Appeal Tribunal issued a judgment in a case joined to Bear Scotland v Fulton which covers how holiday pay should be calculated in relation to work-related travel.
Where payments are made for time spent travelling to and from work as part of a worker’s normal pay, these may need to be considered when calculating holiday pay.
Holiday pay and sickness
When a worker takes paid or unpaid sick leave, their annual leave will continue to accrue. If a worker is unable to take their annual leave in their current leave year because of sickness, they should be allowed to carry that annual leave over until they are able to take it, or they may choose to specify a period where they are sick but still wish to be paid annual leave at their usual annual leave rate.
Calculating holiday pay for different working patterns
No matter what the working pattern, a worker should still receive thier holiday pay based on a ‘week’s normal remuneration’.
Pay in lieu of holidays
During employment, 5.6 weeks of annual leave (this is the amount all UK workers are statutorily entitled to = 20 days holiday and 8 bank holidays) must be taken and cannot be ‘paid off’.
When employment is terminated, all outstanding holiday pay that has been accrued but not taken must be paid.
Limit on a claim for an underpayment
Claims for a series of backdated deductions from wages, including any shortfall in holiday pay will be limited to a maximum of 2 years. It is expected that the effect of this change will be to limit a claim for deductions from pay going back more than 2 years for any claim presented on or after 1 July 2015.
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