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What new holiday pay ruling means for employers

PUBLISHED: 10:20 27 November 2014 | UPDATED: 10:20 27 November 2014

Getty Images/iStockphoto

Getty Images/iStockphoto

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The Employment Appeal Tribunal has recently decided that where a worker's pay includes commission and/or overtime in respect of work they are obliged to carry out this must be taken into account when calculating their holiday pay.

In other words holiday pay should be calculated by reference to a worker’s average or overall earnings including commission and overtime, not just their basic pay.

Earlier this year a British Gas Worker whose pay was made up of 40% basic salary and 60% commission took his complaint to the European Court. Therefore during periods of annual leave his pay reduced considerably. The case before the EAT concerned workers from road maintenance company Bear Scotland, engineering firm Amec and industrial services group Hertel. As increasing numbers of workers are remunerated with ever more complex and variable pay structures made up of various elements the decision can be seen as a timely response to this.

So, what does the decision mean in practical terms? How should employers implement the decision? Well as it stands we have little guidance on how holiday pay should now be calculated in light of this decision. We do know that backdated holiday pay can only be claimed if it less than 3 months since the last period of annual leave.

Questions remain: what does it mean to take an average of a worker’s pay: over what period? Furthermore, as the case only applies to the minimum four week’s holiday required under EU law it may also mean that employers may now wish to have two holiday pay arrangements, which could save money but could also be confusing for both those who have to administer the holiday pay system and also for workers when trying to calculate their expected income during periods of annual leave. The decision could be said to have made an area of law that was already a minefield for employers ever more so or it could be said to be an appropriate response to ever more complex pay structures.

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Zoë Lagadec, Principal Solicitor at www.mulberryssolicitors.com

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