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29-01-2015

Few of us could have missed the recent media coverage on the issue of holiday pay.  Whether you missed it or not, here is a useful recap of 10 things you need to know about the issue:

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  1. The Working Time Regulations (WTR) was introduced by the UK government to give effect to the Working Time Directive (WTD).
  2. The WTD requires a minimum of 4 weeks paid holiday for all workers.
  3. In addition, workers in the UK are entitled to an additional 1.6 weeks’ paid leave over and above the minimum entitlement set out under the WTD.
  4. The rules on holiday pay apply to workers. Workers are those who either work under:
    • a contract of employment (in other words employees), or 
    • any other contract, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.
  5. For workers with normal working hours, the WTR have until now been interpreted to exclude variable payments like commission and overtime, unless the overtime is guaranteed by the employer.
  6. There have been various challenges to how holiday pay is calculated over the years: 
      • BA v Williams held that holiday pay should include all of the elements of remuneration which are “intrinsic” to the performance of the job. 
      • Lock v British Gas The ECJ held that holiday pay should include commission as well as basic pay and the Employment Tribunal confirmed that decision in March 2015. 
      • Most recently Bear Scotland v Fulton held that the rate of holiday pay during the minimum 4 week period of statutory leave should include: 
        1. compulsory overtime – i.e. overtime that is not guaranteed but which the worker must work if offered it 
        2. semi-voluntary overtime - overtime that the worker could refuse on reasonable grounds 
        3. supplements for working anti-social hours or being “on call’.
      • These three only apply to the 4 weeks holiday leave granted as a minimum under the WTD not the additional 1.6 weeks’ allowed under the WTR.  That means that employers may be required to calculate different periods of holiday leave at different rates.  It also means that employees can potentially manipulate holiday pay rates, by taking leave immediately following a period of overtime.
  7. Workers without normal working hours, such as zero hours workers, should already receive holiday pay based on an average of all earnings paid in the last twelve weeks of work prior to their holiday.
  8. Employers should already be including contractually guaranteed overtime in the way they calculate all holiday pay under the WTR.
  9. Employers have to decide whether to make changes now based on Lock and Bear Scotland or wait and see. That is based on assessment of risk such as: 
    • working out the cost of making changes by looking at the make-up of the work force 
    • assessing the risk of claims being brought now 
    • considering matters such as staff morale 
    • the risk of negative publicity
    Either way it might be an idea to (i) review contracts (ii) start putting money aside just in case and (iii) plan on a 'worst case scenario' - that may mean looking at matters such as future pay rises, overtime allocations, etc, to try and mitigate any future increases.
  10. It would appear that the ability to claim back pay in relation to historical holiday leave periods will be limited to those claims that have arisen in the three month period prior to issue of the claim. A cap on the back dating of claims will come into force in July 2015, limiting the 'look back' period to two years. Regrettably the precise calculation of holiday pay will still remain a difficult one to get right.
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