Is your company paying the correct amount of holiday pay?

The holiday season is shortly upon us.

All employers will have contracts of employment which agree terms of payment for staff – and this will include pay to cover holiday allowances.

What many employers may not be aware of is the shifting legal focus on this issue which means that they are likely to be scrutinised in tribunals if challenged on the correct value of these holiday pay allowances.

This is particularly pertinent with regards to employees whose salaries are partly made up from commission earnings or overtime.

Employment lawyer Mark Serby from Wake Smith takes a break to consider the issue.

“Historically, most businesses have paid a basic salary allowance for holidays, which does not include any commission or overtime percentage equivalent.

This has been successfully challenged in several high profile cases which have gone in favour of the employee Claimants. The outcome of these cases has a significant impact upon holiday pay for many employers.

“The question this poses to employers is whether they are doing enough to match normal earnings for any employee during holiday leave, where that employee relies at any time on additional income, from such sources as overtime, bonuses or commission, to raise their salary up to a level that they are accustomed to earning.

“In the case of Williams and others v British Airways plc the European Court of Justice found that a pilot’s holiday pay should not be limited to basic salary but must correspond to normal remuneration which means that holiday pay should include remuneration linked to the performance of tasks they were contractually bound to perform and payments that related to their professional status. Ancilliary costs such as expenses were not taken into account in calculating holiday pay because obviously they were not being incurred.

“These principles were built on in Bear Scotland v. Fulton. In 2015 the Employment Appeal Tribunal considered the question of overtime payments and criticised employers who were paying basic pay during holiday periods without considering how overtime payments should also fall into that calculation. This set an initial precedent which has been brought much more into the spotlight when considered alongside other cases regarding holiday pay.

“In the case of Lock v. British Gas Mr Lock was employed as a salesman by British Gas and was paid a basic salary plus commission based on the number and type of contracts he tied customers into.

“However, when Mr Lock took holiday leave, he was only paid his basic salary plus any commission which he had earned prior to the holiday period. Since he was on holiday, he could not earn any commission, his earnings were reduced below his usual value - and it was that disparity which formed the basis of the dispute.

“It had already been decided in the employment tribunal that Mr Lock was entitled to back-pay from British Gas for the failure to pay an amount equivalent to commission which he would otherwise have earned, if he had not been on holiday.

“The whole point of the dispute's focus is that employees should not be penalised by receiving only normal pay and should in fact, be encouraged to take statutory minimum holiday.

“It is vital that employers take note of the importance of these cases and review their own policies on holiday pay in relation to overtime and commission earnings as this is likely to be challenged much more openly as cases such as Bear Scotland v. Fulton and Lock v. British Gas have become precedents for such disputes.

For further information please contact Mark Serby on 0114 224 2048 or at mark.serby@wale-smith.com

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