Holiday pay – are employers ready for change?

Given the recent high profile cases relating to holiday pay, should we be speculating the end of the low cost holiday (for employers at least!)? With a landmark case set to trigger a radical overhaul over the way holiday pay is calculated, public sector HR and payroll managers need to consider the implications.

What’s the case?

In Neal v Freightliner Ltd, the Tribunal held that an employer should have taken a worker's overtime payments into account when calculating his holiday pay. The employer lodged an appeal to the Employment Appeal Tribunal (EAT) and the case was joined with the Scottish case Fulton and another v Bear Scotland Ltd (which concerns the inclusion of other supplementary payments in holiday pay calculations). The EAT will hear the cases on 30 and 31 July 2014.

What could the pending decision mean for employers?

The pending EAT decision is likely to be hugely significant (and expensive) for all employers, with possible liability spanning back to 1998. The judgment may be directly relevant where overtime and/or commission payments form part of employees’ remuneration. The case should also signal the correct approach going forward to the inclusion of other variable components of remuneration in holiday pay, e.g. bonus payments.

Furthermore, on 23rd May 2014, the Court of Justice of the European Union (CJEU) ruled in the case of Lock v British Gas that any national law which excluded commission from holiday pay is out of line with the Working Time Directive. Mr. Lock was a British Gas Salesman who received basic pay and commission. His commission was paid on a monthly basis, depending upon sales achieved. When he took holiday, Mr. Lock was paid only basic pay. The Court held that because Mr. Lock did not generate commission during holiday, reducing a worker’s remuneration in respect of holidays was unlawful. The case will not be referred back to the UK Courts for a decision.

What can public sector employers do?

Should employers consider making a payment of holiday pay at the “correct” rate now (i.e including overtime/bonus payments) in order to break the series of deductions from wages and so put previous potential claims from employees out of time in the Tribunals? Or does this have the disadvantage of flagging up the issue to employees and conceding the issue before the Courts have ruled upon it?

Do Knowledge Hub members have a view?
Are you an HR manager considering options on this?
Perhaps you’re in the legal profession and have a view?
Maybe your organisation has already mitigated against these circumstances?
Would Knowledge Hub members like to know where to find more information and support on this issue?
We’re really keen to hear from you, so please share your thoughts…

Thank you to Lara Scott-Ellis of EEF for this contribution.

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