Holiday Pay – UK Landmark Ruling!
Earlier this year the European Court of Justice (ECJ) ruled that holiday pay must correspond with normal pay which may be made up of additional amounts such as commission or overtime payments.
Whilst UK legislation would have to follow the ECJ, the ECJ did leave it up to national courts to decide how commission and overtime payments should be calculated. Employer groups have since been anxiously awaiting the UK’s decision, with fears that they could face:
• Billions of pounds in higher wage billons
• Costly claims for underpaid leave as far back as 1998
Yesterday, 4th November, the EAT finally made its long awaited judgement, ruling that:
• Many elements of pay which are currently excluded from holiday pay calculations now must be included e.g. commission and overtime payments. This will ultimately lead to higher wage bills for many employers.
• However, more positively limits have been put in place for back pay liability. Any claims in respect of underpaid holiday pay in the past will only be possible where no more than three months has elapsed between any such underpayments – in practice this is likely to mean that employees can only claim in respect of one year’s leave.
What Action Should Employers Take?
• Now: look at precisely what needs to be included in the calculation of holiday pay
• In the long term it will be worth reviewing how to structure working arrangements in order to minimise the increased liability for holiday pay. For example:
o Offering voluntary overtime rather than guaranteed overtime
o Using agency staff to cover periods of increased demand rather than offering overtime
o Revising commission plan payment schedules
o Preventing leave from being taken at certain times of the year
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