Holidays causing headaches for employers…

Posted 08/10/2014

Over recent years, employers have faced a number of issues in relation to workers’ holiday in terms of how it should be paid, whether it should be paid to employees on long term sick leave and what it is made up of. In Cambridge and the surrounding area, education employers have queried how holiday is paid to term time only workers.

One thing is clear – the decisions of the courts have all been to say that the right of workers to take holidays is very important and nothing should prevent a worker from taking his or her holiday.

Employees are entitled to a minimum of 5.6 weeks paid holiday per year at the rate of a week’s pay for each week of leave. This is calculated in accordance with the “week’s pay” rules set out in statute. However, what is included within this has recently come under scrutiny and is likely to be one of the biggest employment law issues of 2014-15 as its implications are potentially far reaching. Where a worker has normal working hours, should they just be paid their basic salary or should this also include other elements such as overtime and commission? It has been decided that overtime can be included which is guaranteed and that the worker is required to carry out under his or her contract of employment. It has also been decided that commission which is “intrinsically linked” to the performance of tasks that a worker is required to carry out should be included when calculating holiday pay in respect of statutory holiday periods. The reasoning for this is that if you ignore commission then the worker will be at a disadvantage if they take holiday because they will miss out on earning commission during that holiday period, which will see them lose out financially later on. This could be a disincentive to a worker taking much needed rest on a period of holiday. This is in line with the objective of the Working Time Directive to protect the safety and health of workers.

Employers will therefore need to consider whether they need to change their holiday pay calculations going forward. Employers may also be faced with claims from workers that payments for holiday already taken should have, but did not, include for example commission and overtime. Such claims can be brought as a deductions from wages claim and there is a risk that such a claim can go back as far as 1 October 1998, the date that the Working Time Regulations came into force. If an employer changes its holiday pay calculations going forward, this may have large costs associated with it and also highlights the issue to employees once they realise that a new approach is being taken. Therefore, it will be a judgement call for employers to decide at what point or if at all to amend its policy in relation to holiday pay.

For individual advice, please contact our employment team on 0330 404 0773.