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Holiday Pay

The Employment Appeal Tribunal decision in November 2014 with reference to holiday pay has come as a relief to some and a concern to others.

The position as it was understood by many was that holiday pay was to be calculated using reference to basic hours and basic pay.  This seemed to make sense.

But what of employees who had basic pay and hours but if they were at work received regular overtime commissions and bonus.  When on annual leave they missed out.

The Working Time Directive implemented by the Working Time Regulations in the UK deals with holidays and rest break provision.  It has a health and safety focus in that it requires rest and leave to be taken for the good of the worker/employee.

If an employee was effectively worse off financially as a result of taking leave this contradicts the purpose of the regulations.

In 2012 the EJC held that holiday pay did need to include normal remuneration which included payments intrinsically linked to the performance of the contract  (British Airways plc –v- Williams and others [2012] )

Regarding Commission payments in Lock –v- British Gas Trading Limited & others it went on to say that holiday pay should include commission. How employers achieve that is yet to be advised and the case is back in the UK in February 2015.  There is no guidance on the issue of discretionary bonuses but that will probably come next.

The EAT in Bear Scotland Ltd & ors –v- Fulton & ors  (alongside other consolidated cases) has also now decided that holiday pay needs to include overtime.  This is in relation to non-guaranteed over time ie over time which is not guaranteed by the employer but which the employee/worker must undertake.

Certain other allowances for example travel time payments should also be taken into account in the calculation.  Normal travel expenses are not included.

The enhanced calculation only applies to the four weeks/20 days holiday per annum that the European Working Time Directive requires not the additional 8 days now granted in the UK however and it is limited in time as far as back pay goes.

Claims can only be progressed for back pay in the Tribunal if there is no more than a three month gap between times when the four week minimum holiday is taken meaning that claims going back to 1998 as was the original scaremongering are probably ruled out.  As the employer choses which leave falls into which category claims will probably be limited to this year only though it is of course impossible unless each case is reviewed on its facts to provide blanket guidance in this area. 

Claims of this type need to be commenced within three months of the underpayment or the last in a series of underpayments. 

Realistically therefore are employees going to claim who are not part of a union? 

If they do as long as there is a 3 month break between the European element of the holidays they can not back claim and any alleged series of deductions is broken meaning the claim value is low.

When considering Employment Tribunal Fees in addition it seems unlikely to be the issue we first thought.

Needless to say leave for appeal of the decision has been granted to the Court of Appeal so watch this space.

What will this mean for employers?

Will they now look at budgeting for these increased payments or will they simply change commission and bonus structures or restrict levels of remuneration and increases?

Will they simply make an offer before the appeal and put issues to bed early?

Employers will undoubtedly review their holiday pay policies to take into account the different types of leave which now appear to be:-

  1. European
  2. UK additional statutory
  3. Any other contractual leave over and above these

For now if you are an employer and you receive a claim or contact from ACAS early conciliation we advise you to respond and advise you will deal with matters when the guidance if finally clear or if you receive a claim to reply to it but to make an application for a stay pending further progress in this area and a final decision on appeal.

If you wish to discuss this or any other areas of concern please contact us at

Alternatively you can subscribe to our webinar list and we shall be delivering a webinar on this subject on 10 December 2014 at 1pm.  Contact us for further details on the email address above or register directly with our partner