Holiday pay: Be aware

There have been a number of changes to employees’ holiday pay entitlements over the past year and employers must ensure they are aware of them, says Backhouse Jones Solicitor Rafia Ahmad, who specialises in employment law.

Speaking at Backhouse Jones’ transport law seminar last Thursday (4 June), Mrs Ahmad points to a judgement made in November 2014 where the Employment Appeal Tribunal (EAT) ruled that an employee’s overtime payments had to be taken into account when calculating holiday pay if it is intrinsically linked to tasks he or she is contractually required to carry out.

“This judgement has huge implications in the transport industry, given drivers’ working hours,” she says. “Holiday pay should include guaranteed overtime, which has always been the case, but must now also include non-guaranteed overtime.

“Non-guaranteed overtime is additional hours that the employer is not obliged to offer, but if it does, the employee is obliged to carry out. The European Court of Justice has suggested that a reference period of 12 weeks should be used when calculating an employee’s holiday pay.”

Mrs Ahmad adds that where bonus payments are routinely made, these must also be incorporated into holiday pay.

“It depends whether bonuses are guaranteed or truly discretionary, but where there is an expectation of an additional sum above basic pay, such as overtime or bonuses, it then forms part of an employee’s regular remuneration, and so he or she should receive it when on holiday.”

Subsistence payments are not included, she says, but commission may be. The EAT originally found in favour of the employee, but that decision is currently in the process of being appealed, with the hearing expected towards the end of the year. It is unlikely that the ruling will be overturned.

Employees may claim backdated holiday pay, but from 1 July such claims will be restricted to a period of two years. Claims are also limited where there has been a gap of three months or more between underpayments, says Mrs Ahmad.