Holiday pay

Workers are entitled to 28 days' annual leave under the Working Time Regulations 1998 paid at their normal rate of remuneration. The situation can become complicated if the worker earns overtime or commission or other payments referrable to their work. We summarise the recent cases on the calculation of holiday pay starting with the latest case, Patterson v Castlereagh Borough Council, dealing with voluntary overtime.

The Northern Ireland Court of Appeal allowed the appeal in Patterson v Castlereagh Borough Council [2015] NICA 47, following the employer's concession that there is "nothing in principle" to prevent purely voluntary overtime from being included in holiday pay. To trigger its inclusion in the holiday pay calculation, the worker's overtime must be "normally" carried out, and be an "appropriately permanent feature" of the worker's remuneration. This case is important as the other recent holiday pay cases, referred to below, do not deal with purely voluntary overtime. The case will now be reheard by the tribunal.

In Bear Scotland Ltd and others v Fulton and others; Hertel (UK) Ltd v Woods and others; Amec Group Ltd v Law and others [2015] IRLR 15 EAT, the Employment Appeal Tribunal held that a week's pay when calculating holiday pay must include overtime that employees are required to work, even if the employer is not contractually obliged to offer a minimum number of overtime hours.

The Employment Appeal Tribunal in Bear Scotland applied the decision of the European Court of Justice (ECJ) in Lock v British Gas Trading Ltd [2014] IRLR 648 ECJ, which held that a worker's commission payments must be included in the calculation of his or her holiday pay.

The employment tribunal in Lock v British Gas Trading Ltd and another ET/1900503/2012 held, on return of the case from the ECJ, that the Working Time Regulations 1998 (SI 1998/1833) (WTR) can be read as if they are consistent with the Working Time Directive (2003/88/EC) so as to include commission payments in holiday pay calculations in respect of statutory holiday under the WTR. The employer in this case has announced it intends to lodge an appeal to the Employment Appeal Tribunal.

In light of these decisions, some employers may have failed to pay the appropriate level of holiday pay which could result in significant claims for back pay by workers. As a result, the Government has introduced legislation to limit backclaims going back more than two years. The Deduction from Wages (Limitation) Regulations 2014 (SI 3322/2014) limits any potential backclaims for holiday pay to two years for claims presented on or after 1 July 2015.

To help you manage holiday pay in your organisation, we have updated our Holiday policy and Contract clause on holiday pay for employees on XpertHR to take account of Patterson, Bear Scotland and Lock. Our content is regularly updated to take account of developments in this area.

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