This is an ongoing topic which has exercised the employment area for the past couple of years. The European court of Justice (ECJ) has consistently confirmed that employees should be encouraged to take all their holiday on health and safety grounds so that they can return to the fray refreshed. You cannot encourage employees to ‘buy out’ their holiday except when they hand in their notice. The ECJ rulings apply only to 1st 20 days of annual holiday entitlement not the 28 which is the UK holiday entitlement.
Issues have arisen when trying to understand what is a day’s pay for holidays and should commission and or overtime be included in the calculations as otherwise it was felt that employees would be penalised by taking holiday which is at variance with the ECJ direction.
There has been focus on the calculation of holiday pay by employers since the decision of the Employment Tribunal in the case of Bear Scotland which dealt with the issue of overtime when calculating holiday pay.
The latest case on the topic, British Gas –v- Lock, dealt with the issue of commission when calculating holiday pay. The case was recently considered by the Employment Appeal Tribunal (“EAT”) following a reference to the ECJ Union. The EAT has confirmed that commission should be included when calculating holiday pay for an employee whose normal remuneration includes the payment of commission.
The judgment provides confirmation of the principle established in recent decisions including Bear Scotland that where an employee’s normal pay varies through the working of overtime or payment of commission holiday pay should be calculated taking account of the variations whether those be caused by overtime working or commission payments.
Legislation was passed to limit the potential for “back dated” claims for underpayment of holiday pay but looking forward employers whose employees’ pay does vary would be well advised to consider what “normal” pay is when calculating holiday pay and over what period you should measure the fluctuations in overtime. The issue needs to be considered now in order to avoid a future build up of arrears and possible
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