PART II - HOLIDAY PAY
In the second of our Information Updates on Holiday Entitlement, we focus on the issue of Holiday Pay.
The Working Time Regulations 1998, states that a worker is entitled to be paid in respect of any period of annual leave to which he is entitled, at the rate of a week’s pay in respect of each week of leave.
The Working Time Directive was introduced under the umbrella of Health & Safety, with the aim of providing a minimum amount of time off from work for workers in the interest of their wellbeing. Consequently, the issue is that a worker should receive the pay that they would normally receive, because otherwise, they may be discouraged from taking their annual leave entitlement.
So what constitutes a ‘Week’s Pay’?
The general rule is as follows:
- For workers with fixed working hours, holiday pay amounts to their weekly normal remuneration.
- For workers whose hours differ from week to week, or the weekly pay differs each week either due to the hours / time they work, or due to the amount they produce, holiday pay should be calculated on the average pay the worker earned in the previous 12 weeks in which they were paid. In calculating the 12-week period, you start with the period of 12 complete weeks ending with the first day of the leave; but if, during any one of those 12 weeks, the worker did not earn any remuneration, you must discount that week, and extend the 12-week period backwards by a further week until you have a 12 week period in which the worker received at least some remuneration in every week.
When calculating Pay – what do you include?
Contractual Supplemental Payments
In the case of Williams and others -v- British Airways plc, the Supreme Court held that holiday pay should not just be basic pay; but should also include contractual supplemental payments which form part of 'normal remuneration'.
In this case, there was a referral to the European Court of Justice, which held that ‘normal remuneration’ would include remuneration that is intrinsically linked to the performance of tasks that a worker is contractually required to perform.
This case related to Pilots who were paid two supplements: flying pay supplement and the taxable element of a payment for time away from base.
So what does this mean?
Where a worker receives supplemental payments, in addition to their basic pay, for whatever reason, consideration needs to be given as to whether it should be included in the calculation of holiday pay. We set out some examples:
Based on the Williams case, if a worker receives, as part of their remuneration package, a daily / weekly attendance bonus, or a productivity achievement bonus, these ‘bonus’ payments should be included in the calculation of holiday pay.
Standby and Emergency call out Payments
In Fulton and others -v- Bear Scotland Ltd (and applying the Williams case) it was held that these payments should be included in the calculation of holiday pay as they were activities that were intrinsically linked to the performance of tasks required to be performed under the contract.
In the case of Lock – v – British Gas (Information Update 2016/06) regular commission payments and allowances that are linked to the performance of the worker, should be included when calculating holiday pay.
In this case a referral was made to the CJEU concluded that holiday pay of such workers should comprise both their basic salary and an amount that reflects commission or other regular variable pay components previously earned over a representative period.
Overtime – guaranteed / contractual / compulsory
Where overtime is guaranteed and is regular such that it becomes part of the normal weekly pay, then it should be included when calculating holiday pay.
Overtime – non-contractual / voluntary
The Court of Appeal ruled in Flowers -v- East of England Ambulance Trust that voluntary overtime should be counted when calculating holiday pay if it is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration.
In this case 'voluntary' overtime was entirely voluntary and the Ambulance Crews were free to choose whether or not to do it.
Overtime - ad-hoc
Where overtime is only required to be worked on rare occasions, or the worker volunteers to work overtime on the odd occasion, we do not believe that such infrequent overtime payments will be seen as ‘sufficiently regular and settled’ such that it should be factored into the calculation for holiday pay. But we will keep an eye on further case law results – you might be forgiven for taking the view this whole topic is only going in one direction.
Where a worker is paid the same every week – that is what they will be paid if they take a week’s holiday.
Where a worker’s pay varies each week due to receiving commission, bonuses, or regularly working overtime, then the calculation of holiday pay should be based on an average over the previous 12 weeks.