Holiday pay – what needs to be included?

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A worker must receive a minimum of 5.6 weeks of holiday per year and be paid the equivalent of a week’s pay for a week’s leave.

This is made up of four weeks from the Working Time Directive (WTD) and an additional 1.6 weeks under the Working Time Regulations (WTR).

The rules on what should be included within holiday pay are slightly different for the four weeks of leave provided under the WTD compared to the additional 1.6 weeks of leave that is provided under the WTR, as outlined in ‘Calculating holiday pay’ below.

The holiday pay a worker receives must be the equivalent of their normal remuneration. If a worker has “normal working hours” (i.e. works the same hours, at the same time each week and the pay does not vary), the holiday pay is simple to calculate as the worker receives the same amount of remuneration each week.

However, if a worker does not have normal working hours, or they do have normal working hours but their pay varies due to the times the work is done or the amount of work done, the rules on holiday pay become more complicated.

Calculating holiday pay

As of 6 April 2020, a 52-week reference period of the workers’ pay should be used to calculate the normal remuneration period (or the number of complete weeks a worker has worked there if less than 52 weeks). Periods where the worker did not perform any work and was not paid, or where they received less remuneration than they would have received if working, should be disregarded within the 52-week reference period and replaced with weeks where they were working and being paid.

When considering what should be included when calculating a worker’s normal remuneration, the following should be taken into account.

Overtime

The Courts have identified three categories of overtime:

  • guaranteed compulsory overtime: where the employer is liable to pay workers for overtime, regardless of whether it has been worked or not
  • non-guaranteed overtime: where the employer is not obliged to provide overtime, but the worker must agree to do overtime if the employer requires them to
  • voluntary overtime: where there is no obligation for overtime to be offered by the employer and no obligation for the worker to agree to do overtime if it has been offered.

Guaranteed compulsory overtime must be included within the holiday pay calculation for the full 5.6 weeks holiday leave.

Non-guaranteed overtime needs to be included in leave taken under the WTD (four weeks).

Voluntary is the most common type of overtime. Following the Bear Scotland case, voluntary overtime should be included when calculating a workers ‘normal’ working hours if the overtime has been paid over a sufficient period of time and is on a regular or recurring basis.

It will be for a Tribunal to decipher whether the overtime was sufficient and regular enough to be considered normal remuneration for the purposes of calculating holiday pay, but employers should take careful consideration when deciding whether overtime should be included.

As an example, in the case of Butt, the Court held that voluntary overtime should be included within the workers holiday pay even though the overtime payments were irregular because they were ‘normally received’.

If the employer considers that voluntary overtime needs to be included within the holiday pay, it should be paid for the leave taken under the WTD (four weeks) as a minimum.

Bonus/commission payments

Commission payments and bonuses may need to be included within the holiday pay calculation if they are considered to be intrinsically linked to the performance of a workers contractual duties. Again, elements of pay which are sufficient and regular should be included when calculating a workers normal remuneration for the purposes of holiday pay and should be included for the holiday provided under the WTD (four weeks) as a minimum.

As an example, in the Bear Scotland case, a radius bonus that was paid to staff when they had to travel over eight miles away from their home had to be included within the workers holiday pay.
However, payments which are occasional or ancillary or a bonus which is not linked to performance do not need to be included within the holiday pay calculation.

The law surrounding this area can be complex and it will be for the employer to consider each bonus/commission payment carefully to decide whether it should be included as part of the holiday pay.

Other payments

Other payments that should be considered for payment within holiday pay include (but are not limited to):

  • payments that relate to the personal and professional status of a workers
  • shift allowances and premiums
  • travel allowances
  • standby/call out payments
  • other taxable allowances.

Holiday pay claims

It is imperative that employers calculate the holiday pay correctly as workers could claim for historic back pay. Employers would have to pay the back-pay in one lump sum if the worker is successful. The back pay is limited to two years and workers must bring a claim within three months from the date payment should have been made.

Contact our employment law solicitors today

If you have any concerns about the holiday pay calculation and the elements of pay that should be included, you should seek legal advice. The Employment team at Ashtons are versed in advising clients on holiday pay and would be happy to assist.

Please get in touch with our specialist Employment Law team through this website or by calling 0330 191 4836.

Our partners at Ashtons HR Consulting are also on hand to assist you.


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