16 Nov 2016

Employers will no doubt be familiar with the long-running saga relating to holiday pay. By way of a reminder, recent decisions now mean that holiday pay for statutory holiday (the four weeks’ leave provided pursuant to European law) must now be calculated on the basis of a worker’s ‘normal remuneration’. This means that commission payments and bonus payments a worker normally receives as part of their pay must be reflected in holiday pay calculations. The position is the same in relation to payments for overtime which a worker is contractually required to work (whether or not the employer is required to make overtime available). The position surrounding overtime which is purely voluntary is less clear.

A number of Tribunal cases in relation to voluntary overtime and other voluntary payments have been working their way through the system and decisions are now beginning to be reported. Those decisions make clear that the key question to consider is not whether work is required under a worker’s contract of employment, but whether a payment has been received with such regularity that it can properly be categorised as ‘normal remuneration’. If it is, then it should be reflected in the calculation of holiday pay. In the cases concerned, voluntary overtime, standby and call-out payments had all been received with such regularity that the employers were found to have underpaid holiday pay by not factoring such payments into calculations.  

As mentioned above, these decisions are not binding on other Employment Tribunals. However, they do give an indication of the approach Tribunals are taking to cases of this kind. Unfortunately the Courts have so far declined to provide clarification on how regularly a payment needs to be paid before it can be classified as ‘normal remuneration’. While further guidance on this point is awaited, specific cases are likely to be assessed on an individual basis. Employers would be well advised to begin reviewing their voluntary overtime, standby and call-out arrangements to establish which workers receive related payments regularly and to give consideration to adjusting holiday pay arrangements.

Finally, a word of caution. These cases apply only to the four weeks’ holiday derived from European law, rather than the 5.6 weeks’ provided under UK law or any additional contractual entitlements, adding an extra administrative burden for employers.