Holiday Pay

2014 had a lot to say about holiday pay.

In the case of Robinson-Steele v RD Retail Service Ltd in 2006 the European Court of Justice gave some much-needed guidance on how to calculate worker’s holiday pay in relation to The Working Time Directive 2003/88/EC, art 7 (WTD). It said that ‘paid annual leave’ in WTD means that holiday pay should reflect ‘normal remuneration’. Under the Working Time Regulations 1998 workers are entitled to be paid ‘in respect of any period of annual leave to which they are entitled’ at a rate of one week’s pay for each week of leave. If a worker’s remuneration varies then the amount of one week’s pay is averaged over a 12 week rolling period.

The ECJ held in the case of Williams and others v British Airways plc that the holiday pay rate for pilots should not be limited to their basic wage but instead must relate to ‘normal remuneration’. On top of their basic salary, pilots receive a ‘flying pay supplement’ and a ‘time away from base allowance’ when not on UK soil. The employer had not taken these additional payments into account when calculating their holiday pay. As the flying pay supplement was inherently linked to the job that the pilots were obliged to perform under their contract it was held by the Court that this should be included in the calculation. However, the court noted that payments which are intended only to cover occasional or supplementary costs such as the ‘time away from base allowance’ do not need to be included in the calculation. In this case the Court confirmed that the purpose of holiday pay is to put workers in a financial position equivalent to the financial position they are in during periods of work.

In the case of Lock v British Gas Trading Ltd it was held that where a worker’s remuneration includes commission which is calculated in relation to sales achieved then this should be taken into account when calculating holiday pay. If commission was not taken into account then a worker could be financially worse off during annual leave. The court emphasised that no employee should be financially worse off for being on annual leave as this could act as a deterrent from taking holiday.

Historically, overtime has only been included in the holiday pay calculation if it is compulsory as well as guaranteed. However recent cases in the tribunal have indicated otherwise. The EAT has ruled in the cases of Bear Scotland Ltd v Fulton and Baxter; Hertel (UK) Ltd v Wood and others; Amec Group Ltd v Law and others, that workers are entitled to be paid ‘normal remuneration’ for their minimum four-week (does not include the eight bank holidays) holiday entitlement under EU law, which includes non-guaranteed overtime (that is, overtime which the employer is not obliged to provide but which must be undertaken by the worker if requested.) However, the judgment also limits the scope for workers to pursue historic claims for arrears of holiday pay. Any claims alleging underpayment of holiday pay will be time barred if there was a break of at least three months between successive underpayments. A gap of more than three months means there can be no ‘series of deductions’ from holiday pay, so tribunals will not have jurisdiction to hear such claims.

If a worker becomes sick while on holiday then the days that they were sick do not count towards their annual leave allowance. An employee who has been on long-term sick leave can claim accrued holiday pay. It has recently been decided in the case of Sood Enterprises Ltd v Healey that while employers are required to allow employees to carry over the four weeks’ annual leave provided for under the WTD if they have been unable to take this due to sickness, employers are not required to allow employees to carry over the additional eight days annual leave provided for under the WTR 1998.

On termination of employment a worker is entitled to full payment of any accrued untaken holiday. This applies even on the death of an employee.

Employees who have not been paid the correct holiday pay can potentially bring a backdated claim. In the civil courts a claim for breach of contract has a six year limitation period. An unlawful deductions claim brought in the Employment Tribunal can date back to 1998 in certain limited circumstances.

Nick Barnett

Published on 09/01/2015

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