Holiday Pay: A Little Helping Hand

Case Law 

Due to case law regarding the inclusion of commission and overtime payments in holiday pay, companies now must ensure that employees are paid their ‘normal’ pay during the 4 weeks of their statutory 5.6 weeks annual leave, to avoid any claims of unlawful deduction to wages. 

• Fulton and another v?Bear Scotland?Ltd EATS/0010/16 (on overtime in holiday pay) 

• Dudley Metropolitan Borough Council v Willetts and others EAT/0334/16 (voluntary overtime in holiday pay) 

• Lock?and another v?British Gas?Trading Ltd (No.2) [2016] IRLR 316 EATECJ (on commission in holiday pay) 

What is ‘Normal’ Pay? 

Normal Pay means - the remuneration they would usually get including: 

• Basic rate of pay; 

• Overtime (including guaranteed, non-guaranteed and voluntary overtime - but not overtime worked on a very infrequent basis); and 

• Commission. 

What does 4 weeks of the statutory 5.6 weeks mean? 

If an employee works full time, 5 days per week for example, then 4 weeks would equate to 20 days (4 x 5) 

If an employee works part time, 3 days per week for example, then 4 weeks would equate to 12 days (4 x 3) 

Please note that if employees are contractually entitled to more holidays, for example 6 or 7 weeks per annum (i.e. 30 or 35 days) this ruling still only applies to the 4 statutory weeks as above.  

How Do I Calculate Holiday Pay? 

Companies should use a ‘Reference Period’, which is the 12-week period before a holiday is taken, to calculate an employee’s holiday pay. ‘Normal’ pay is calculated as an average over this period.  Therefore, whatever basic rate, overtime and/or commission that has been paid during this period will be averaged to create the holiday pay due. 

What about Overtime? 

All Overtime should be included in holiday, this includes: 

• Overtime that is Guaranteed (stated in contract) where the employer will provide overtime and the employee must work overtime; 

• Overtime that is Non-Guaranteed (stated in contract) where the employer doesn’t have to provide overtime but if they do the employee must work overtime; and 

• Overtime that is Voluntary (not stated in the contract) where the employer doesn’t have to provide overtime and the employee doesn’t have to work overtime.   

What about Commission? 

Commission should be included in holiday pay if it is linked intrinsically to the performance of required tasks carried out under the contract 

Future developments to keep a look out for 

Other ‘similar payments’ should be considered when calculating holiday pay - however this has not been defined by case law as of yet: 

• Incentive Bonuses (if regular and intrinsically linked to performance); 

• Productivity / Performance Bonuses; 

• Work-related travel; and 

• Call out allowances 

Payments not to be seen as ‘similar payments’ and therefore not included in holiday pay: 

• Annual Occasion Bonus; and  

• Expenses. 

What is the limitation of Claims? 

The Deduction from Wages (Limitation) Regulations 2014 means that a claim for backdated deductions can only cover a maximum of two years.  However, if there is a 3-month period where no unlawful deductions have been made, this would then break the chain of any series of deductions and a claim cannot be made.  

How we can help you

If you’d like to discuss any of the issues detailed in this blog, get in touch with us today on 0161 941 2426. We’re here to help.