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Due to recent 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.
What is ‘Normal’ Pay?
Normal Pay means - the remuneration they would usually get including:
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:
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:
Payments not to be seen as ‘similar payments’ and therefore not included in holiday pay:
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.
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