Holiday Pay Ruling : What Does This Mean For You?

Earlier this year, when a disgruntled British Gas worker took up his case with the European Court of Justice, it shone a glaring spotlight on the discrepancies between British and EU law.

The British Gas worker appointed out that whilst his pay was made up of 40 percent basic and 60 percent commission on sales – he was, in fact, only paid the basic pay whilst on holiday. The case triggered a strong reaction from numerous employees at various other companies.

Individuals from companies including Amec, Bear Scotland and Hertel all appeared before the employment appeal tribunal in the UK questioning the same thing; holiday entitlements. In the eyes of these unhappy employees, all holiday pay should be based on average earnings, which were significantly higher when overtime and commission was taken into consideration.

What was the outcome?

With regards to three provisional cases, the UK Employment Tribunal ruled that regular or compulsory overtime, in which employees are obligated to work when necessary, should be considered when calculating the 28 days of mandatory holiday pay required by the working time directive – which was brought into UK law in 1998.

What about commission or back-dated payments?

Whilst no decision on commission has, of yet, been reached – the employment tribunal significantly restricted the opportunity for backdated claims being made. First, it ruled that claims for underpaid holiday would be dismissed where there was a break of three months or more.

In addition, the tribunal also ruled out the inclusion of the extra eight days of annual leave that employees are entitled to under UK law. Subsequently, those days cannot form part of any claim.

How will it affect employers?

There is major concern over the impact the decision may have on employers, with the Institute of Directors, the British Chamber of Commerce and the Federation of Small Businesses all condemning the ruling.

And whilst it appears likely that businesses will face the prospect of higher bills for employee holidays, the restrictions of the ruling mean the blow will be softer than anticipated – although as of yet, the cost to British business as a whole is unknown.

As an employer, you will now be obligated to include overtime when calculating holiday pay. This effectively means that you should review any and all holiday that employees have taken over the last three months – and subsequently assess if added payments should be made. It is advisable to consider revising all holiday pay policies, in order to explain any changes, as well as to address how additional payments will be calculated.

What does it mean for employees?

Effectively, the ruling can be very much seen as victory for the working man or woman, particularly from the perspective of the unions. They argue that low-paid workers, for example, rely largely on overtime to boost their salary, so it is only fair that it be included in holiday pay.

If you work regular overtime, Unions are already in the process of asking those workers who feel that they haven’t received the same pay during their holidays as the rest of the year, to get in contact with them.

If you do not form part of a union, you can seek advice from an Employment Lawyer. Alternatively, you can choose to approach your employer directly or visit Acas – a service that provides free and impartial advice to employers and employees, on all aspects of workplace relationships and employment law – at their website www.acas.org.uk.

What does the government say?

Meanwhile, the coalition contends that overtime should not be included in holiday calculations and is concerned about the potential impact the ruling may have on employers.

A spokesperson for the Department of Business, Innovation and Skills said, "The government wants to get the right balance between the needs of employers and employees."

With further test cases scheduled later in the year, certain stones remain unturned. But perhaps the most pressing question is that of how employees, in particular, will prove that the overtime that they do is, in fact, essential to their job?

This ruling is likely to hit many businesses very hard, both in the private and public sector – especially those regularly giving overtime to staff such as in construction, healthcare, travel or the Police.Unless further assistance or guidance is provided by the Government it is very likely that this ruling will be subject to further appeal and case law. However, for now, it will certainly impact on those giving or carrying out regular overtime in regards to holiday pay.”

For more information on the holiday pay ruling, or any area where you require legal advice, please contact the Keystone Employment Team.