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Holiday pay update

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Associate Solicitor Amy Edwards discusses the recent changes to holiday pay

It seems that the issue of holiday pay is in the headlines again. Recently the European Courts decided that commission must be included when calculating holiday pay and now it has been decided that overtime payments should also be included.

The EAT’s keenly awaited decisions in Hertel, Bear Scotland and Amec confirmed that all elements of a worker’s normal remuneration which are intrinsically linked to the performance of an employee’s duties-  including payments in respect of commissions and now  overtime, need to be included when calculating holiday pay to which the employee is entitled.  

The latest decision could be reviewed by the higher courts and Business Secretary Vince Cable has announced he is setting up a new task force to “assess the possible impact” of the ruling.  

However, meantime, employers need to act now to limit their exposure to any potential claims from disgruntled employees:

Where an employee is able to show that they have not received the statutory holiday pay to which they are entitled, they can seek repayment of the outstanding amount by pursuing a claim in the Tribunal.

In essence, the employee is simply required to have commenced the Tribunal claim within 3 months of the last ‘unlawful deduction ‘ being the last time that they were incorrectly paid holiday pay.  So a claim could extend back several years, and if employee’s wages include a number of different elements such as commissions, bonuses and overtimes – these are likely to be significant sums for those employers with large workforces.  Any arrears of holiday pay claim will be out of time if there is a  break of more than three months between successive underpayments.  

From now on, any paid overtime (whether voluntary or not) - and commission/bonus payments -  should be considered alongside other premiums when calculating holiday pay and a review carried on the employers potential exposure to any historical claims, and a decision made as to whether payments should be made to those effected employees (on a confidential basis and in order to settle any historical claims that employee may have in this respect).  However, in order to complicate matters it should be noted that this decision only applies to the basic 4 weeks holiday granted under the Working Time Directive, NOT the additional 1.6 weeks provided under the UK’s Working Time Regulations.  

Our specialist  team of employment solicitors would be pleased to work with you to review how this will effect your business and what steps you can take to  limit your exposure to any potential tribunal claims.