How should an employer compute a week's pay in relation to an employee's holiday pay entitlement?

In the absence of any relevant agreement to the contrary, a week's pay is the amount a worker would expect to earn in a week. For workers whose pay varies, a week's pay is their average weekly earnings over the 12-week period ending with the week immediately preceding the date on which their holiday begins. A week's pay for a salaried worker is generally taken to be the worker's annual salary divided by 52.

The question of which elements of pay should be taken into account when calculating normal remuneration for the purposes of holiday pay has been addressed in a number of cases. In Williams and others v British Airways plc [2011] IRLR 948 ECJ, the European Court of Justice (ECJ) held that any aspect of pay that is intrinsically linked to the performance of the tasks that the worker is required to carry out should be included in the calculation of the worker's total remuneration. This meant, in that case, that an allowance for the time spent flying should be taken into account when calculating pilots' holiday pay.

In Lock v British Gas Trading Ltd [2014] IRLR 648 ECJ, the ECJ held that a worker's commission payments must be included in the calculation of his or her holiday pay. On the return of the case from the ECJ to the employment tribunal, the tribunal concluded that words could be read into the Working Time Regulations 1998 (SI 1998/1833) to comply with the ECJ's interpretation of the Working Time Directive, with the effect that commission is included in the calculation of normal remuneration (Lock v British Gas Trading Ltd and another [2015] IRLR 438 ET). The tribunal's decision has since been approved by the Employment Appeal Tribunal (EAT) and the Court of Appeal.

Following the EAT's decision 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, a week's pay must include regular overtime that employees are required to work, even if the employer is not contractually obliged to offer a minimum number of overtime hours. In Dudley Metropolitan Borough Council v Willetts [2017] IRLR 870 EAT, the EAT confirmed that this also applies to voluntary overtime where this is part of a pattern of work that is sufficiently settled and regular to justify the description "normal".