Latest insights from our experts

Posted 6 November 2014
by Martin Laver

Holiday Pay – overtime and other payments

Meeting on shop floor

The issue of calculating an employee’s holiday pay has always caused headaches for employers, but since the recent case of Lock v British Gas in the European Court of Justice (ECJ), it has only become more difficult. Additionally, a judgment in the EAT on four further cases, published this week, may mean that employers need to adjust how holiday pay is calculated.

The law is quite complicated but the recent Employment Appeal Tribunal judgment set out a guiding principle which employers may need to adopt which is that the annual leave calculation should make reference to “normal pay” received by the employee and the judge stated “the essential point seems relatively simple to me. “Normal pay” is that which is normally received”.

We set out below the sorts of payments employees receive and whether you might have to take them in account when calculating employees holiday pay.

Commission Probably should be included
Overtime If regularly offered and worked, probably yes.If irregular and/or voluntary, possibly not.
Standby/emergency call outs Probably, yes
Bonuses linked to performance or attendance Yes
Discretionary bonuses Possibly not
Reimbursement of expenses, subsistence etc. Not included

The case law will continue to develop and we hope that we will have greater clarity on some of these issues in the future. In the meantime, you should think about reviewing the way in which holiday pay is calculated for all staff.

Much has been made in press about claims for historic holiday pay. Such claims are likely to be limited by the recent judgments in the Employment Tribunals at least. Employees might try to argue they can go back 6 years under normal contract law and bring county court claims for breach of contract. Whether such claims can be brought is still the subject of some debate and the recent cases have not shed any light on this issue.

As the case law develops, we will update you. The best thing you can do now is to take some advice on your own business situation.

We have a holiday pay toolkit available and for a fixed fee we will give you advice on your holiday pay provisions in line with the current cases. Subscribers to our employment advice service receive this service free. Contact the team for more details.

Further advice

For further advice and assistance, contact our specialist employment law team on 01392 207020 or email employment@tozers.co.uk.

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About the author

Martin Laver

Partner

Partner in the commercial litigation team specialising in disputed trusts and Wills