News

Following a number of cases challenging the calculation of holiday pay under the Working Time Regulations (WTR), employers are facing the risk of additional costs. There is also a possibility that these costs could be backdated!

Holiday pay in the UK is calculated on the basis of a ‘week's pay' - based on basic salary and excluding payments such as working allowances, expenses, voluntary overtime, bonus payments and commission.

This approach has been challenged by European cases, who have stated that additional payments must be taken into account when calculating holiday pay when they are ‘intrinsically linked' to the duties to be carried out by the employee.

Commission Payments

On 22 May 2014 in the case of Lock v British Gas, the Court of the European Union (CJEU) handed down its first judgement relating to commission payments and holiday pay. The CJEU ruled that commission payments do fall within the concept of normal pay and therefore should be taken into consideration when calculating holiday.

The method of calculating the commission to which a worker is entitled has not been set out by the CJEU, but instead referred back to the national court or tribunal for assessment.

This is worrying news for employers as this could mean an increase in the cost of holiday pay. More worrying is that payments could be backdated!

Next Steps

Employers now await decisions to see how the CJEU's decision will be applied in the UK in the following cases:

Commission: Lock v British Gas - this case will now return to the UK Employment Tribunal, where the CJEU's ruling will be given effect in UK law.

Overtime: The joint cases of Neal v Freightliner and Fulton v Bear go to the Employment Tribunal (EAT) on 30 and 31 July 2014.

In the meantime, claims brought in Employment Tribunals in respect of holiday pay are likely to be stayed, pending the outcome of the appeals.

Possible Outcomes

If the UK courts rule the same, they will then have to decide whether employers or the UK government are liable for compensating employees for backdated losses, going back for 6 years, or potentially as far back as 1998.

Alternatively, incurred costs - which could run into billions of pounds - could potentially fall on government, given that employers have been following the UK regulations.

What to do Next ...

It may be a number of months before this situation will be resolved and there will no doubt be more media coverage once the position is clarified.

In the interim Employers who pay commission or overtime or other regular additions to an employees pay, may wish to start to consider the possible implications and costs (and even how they may want to restructure how they pay staff in the future - and Practical HR are happy to assist with this).

However, it is too early to make changes to your contracts of employment and how you pay holiday at this time.