The Employment Appeal Tribunal ruled at the end of last year on what should be taken into consideration when calculating holiday pay. Under European Law, almost all workers are entitled a minimum of 20 days or 4 weeks paid holiday (for full time workers). UK legislation has extended this to 28 days or 5.6 weeks which can include the 8 national bank holidays. Part time workers and those with irregular hours should calculate their leave accordingly and those working more than 5 days per week are not legally entitled to more holiday.
Employers have generally calculated holiday pay using a worker’s normal basic pay; however, this was challenged by a group of workers who claimed that overtime and other payments they received should be used when calculating holiday pay.
The Tribunal considered whether holiday pay should include non-guaranteed overtime (which is overtime the employer was not obliged to provide but, when it was provided, the worker was contractually obliged to do); radius and fixed productivity allowances; travelling time; and performance-based payments. It did not consider voluntary overtime or the time period that the overtime should be averaged over.
The judgment of the Tribunal confirmed that the ruling referred to the 20 days holiday provided under European law and stated that, if payment was ‘normal’ and linked to the performance of tasks including compulsory and non-guaranteed overtime that the worker carries out under their contract, it should be included when calculating holiday pay.
The Tribunal placed a time limit on claims that can be made by employees for back pay. The employee must bring a claim for unlawful deductions to the Tribunal within three months of the date of the deduction or, if there has been a series of deductions, within three months of the last deduction. However, only deductions made within three months of each other count as part of a series. This means that, if an employee was paid holiday pay in April 2014 and then again in November 2014, they would only be able to make an unlawful deductions claim in respect of the November payment as there was more than three months between the deductions.
A previous Employment Appeal Tribunal ruled that commission and bonus payments should also be included when calculating the 20 days holiday pay provided under European Law but it has not yet been determined how this should be calculated.
Government has since recognised the Tribunal’s ruling and changes made to the Employment Rights Act mean claims made to the Tribunal cannot stretch back further than 2 years.
Workers can still make claims under the existing arrangements for the next 6 months, which will act as a transition period, as these changes will apply to claims made on or after 1 July 2015.
Although there may be an appeal against the ruling and the law may change again, employers should now calculate holiday pay in accordance with the Tribunal ruling and include compulsory and non-guaranteed overtime within the first 20 days of holiday pay (or pro rata’d equivalent if part time).