Holiday pay – again…..

WynLewis

How long will it be before the calculation of holiday pay stops being a problem?

Not for some time yet, it seems.

In the UK, a worker is entitled to be paid during annual leave at a rate of a week’s pay for each week of leave. Although this is easy to calculate for someone on a fixed annual income (just divide it by 52) or where hours or wages are variable (find the average of the last 12 weeks when there was any income to include in the calculation) it can sometimes become complicated in atypical situations. For example:

  • Overtime isn’t included in the calculation unless it’s guaranteed;
  • Rolled up holiday pay continues to be a problem in that it is technically unlawful in England and Wales (but not in Scotland), but sums already paid under a clear and transparent rolled-up holiday arrangement can be set off against any claim for unpaid holiday pay;
  • Annualised shift premiums for variable work have been challenged; and
  • Buying and selling holiday under flexible benefits schemes runs the technical risk, for employers, that someone who trades in part of their statutory holiday without signing away the right in a settlement agreement might still be entitled to be paid.

The latest layer of complexity relates to whether commission should be included in addition to basic salary. A recent view from the ECJ Advocate General in Lock v. British Gas has thrown two spanners into the works:

  • First, that that holiday pay calculations for staff who have variable income (e.g. basic salary and commission) should have their holiday pay calculated by reference to the combined value of the basic an variable element – which could then result in someone earning more on holiday than they would while working; and
  • Secondly, that the period for calculating holiday pay should be 12 months, rather than 12 weeks (even though it is up to member states to determine their own methodology).

There’s no answer to this yet. And it may affect only a small number of employers, given that such issues tend to be sorted out by agreement. But it would be good to achieve some certainty at some time.