In summertime Costco have the Christmas catalogue out and everyone has booked or is thinking of going on holiday. We are lucky in the UK that we get up 28 days paid holyday a year. So when we go on our holiday which is for rest and recreation we get paid. It is understood that we should not be penalised financially when we go on holiday so how do we handle those aspects of pay bonus, commission, overtime etc. which do not form part of the regular package. Do we just pay our staff their basic pay or do we have to allow for the fact that they don’t get overtime or commission as they are not working when on holiday. I am sure all employers will be delighted to know the answer appears to be yes!

The courts have found that employees are entitled to holiday pay which is built up both of basic pay, commission and overtime. The courts have also found that the best way to determine how much is to look at the employee’s average wage is not over the last 12 weeks but over the last 12 months.

You may remember recently the John Lewis partnership found themselves faced with this dilemma  and paid over £40m to its staff in respect of underpaid holiday pay.

The employer by failing to recognise this risk is exposed to either a potential civil claim for breach of contract which goes back 6 years or an unlawful deductions claim at a  tribunal which in theory can go back to 1998 but to succeed it must brought within 3 months of the most recent deduction. Obviously the employee must show continuous service to bring either claim. Failure to act when you are contemplating selling the business can result in an undeclared contingent liability.

There are various solutions for employers ranging from ignoring it and hoping no one will notice to paying up everything going back to 1998 which is expensive. The most sensible approach is to pay overtime /commission as part of holiday pay going forward. The benefits are

  • It is a boost to workplace morale
  • Once 3 months has past since the last underpayment employees will be out of time to bring a claim going back to 1998.

There is still the breach of contract risk but it would involve the employee in relatively costly litigation to recover a smallish sum.  Going forward it might be prudent to reduce commission and bonuses provided they are not contractually guaranteed to offset any expense in this area.

This is a difficult area and case law is still unfolding please look at your payroll determine your risk and contact me for more help on this or any  Human Resource issue at or on 02036407748

Happy Holidays

Michael Newman