Employment e-Brief: Calculating Holiday Pay

In Lock and others –v- British Gas Trading Ltd and another, the Employment Tribunal referred the issue of how to calculate holiday pay to the European Court of Justice. Subsequently, the Tribunal has now issued a judgment providing that holiday pay should include commission and similar payments.

Background:

• The Working Time Directive provides that workers have the right to take a minimum amount of annual leave each year but it does not specify how statutory holiday pay should be calculated.
• The Working Time Regulations 1998 implement the Working Time Directive in the UK and provide that workers are entitled to be paid at the rate of a ‘week’s pay’ as defined in the Employment Rights Act 1996 (for workers who work set hours, their usual salary and for workers with no normal working hours- the average of their last 12 weeks’ pay).
• Historically, UK Courts accepted this principle and additional payments such as overtime and commission have been legitimately excluded from holiday pay by employers. However, this is no longer the case.
• In Williams and others –v- British Airways Plc, the Court of Justice of the European Union held that workers are to receive their ‘normal remuneration’ whilst on holiday. Therefore, payments intrinsically linked to the performance of a worker’s tasks (i.e. commission) form part of ‘normal remuneration’ and must be taken into account when calculating holiday pay.

Lock –v- British Gas – The Ruling:

• The Employment Tribunal has held that the European ruling that commission and similar payments should be included in holiday pay can be enforced in the UK Courts.
• The ruling only applies to the 4 weeks’ holiday specified in the Working Time Directive and not to the additional 1.6 weeks statutory annual leave set out in the Working Time Regulations.
• The ruling does not provide guidance on what reference periods to use and how to quantify a claim for the commission element of holiday pay.

There will be further rulings in respect of the details as to how to calculate holiday pay with the inclusion of commission and similar payments. It will also be interesting to see what is considered to amount to a ‘similar payment’. As to where employers stand currently, the following should be included in holiday pay:

• Compulsory overtime;
• Commission;
• Bonuses which are for attendance or the like and regularly paid;
• Standby/emergency call out payments (i.e. doctors on call); and
• Certain travel expenses (i.e. where there is an element of compensation for time spent travelling).

Areas still to be clarified are:

• Voluntary overtime (although it is likely that this will be included); and
• Annual bonuses.

For further advice please contact a member of the employment team.