Simple really, it is a day’s pay isn’t it, but what is a day’s pay, recent deliberations in the courts both here and in Europe have sought to ‘clarify’ this
Article 7 WTD (Working Time Directive) from Brussels
‘workers must have the right to be paid annual leave for at least four weeks’
Regulations 13 and 13A WTR 1998(UK) (Working Time Regulations) grant all full time employees in the UK 5.6 weeks holiday including statutory holidays
‘A worker is entitled to be paid in respect of any period of annual leave to which he is entitled………at the rate of a week’s pay in respect of each week of leave’. Regulation 16 (1) WTR
That’s what the rules say and note these rulings ONLY apply to the 20 days guaranteed by the working time directive which are compulsory across the EU not to the extra 8 days we enjoy in the UK
WTD provides no method for calculating pay that was left up to national legislation
Where a worker’s pay includes contractual commission, based on reference to sales achieved, Art. 7 of the Working Time Directive supersedes a national law that calculates statutory holiday pay based on basic salary alone in other words the commission element must be taken into account as well.
there is an intrinsic link between the commission and the performance of the tasks he/she is required to carry out under his contract of employment.
The Working Time Directive (WTD) and the recent decisions at both the Employment Appeal Tribunal (England) and the European court of Justice required that employers have to include non-guaranteed overtime and the taxable element of travel allowances when calculating a day’s pay
This means that employers will have to take into account variable payments that would meet the test of normal pay – a payment that is sufficiently permanent and intrinsically linked to the worker’s tasks.
So what is covered?
Overtime which is both guaranteed by the employer and compulsory for the employee to do
Overtime which is not guaranteed, but is compulsory for the employee to do Overtime which can be refused by employees if they have reasonable grounds to do so
And not forgetting
- Performance bonus
- Shift premiums
- Productivity allowances ;
- Other performance-based payments;
- Pay relating to seniority, length of service or professional qualifications, such as charge hand or other “acting up” supplements and/or
- Standby and emergency call-out payments
The amount of a week’s pay is the amount of pay for the average number of weekly normal working hours at the average hourly rate of pay.
the average number of weekly hours is calculated by dividing by twelve the total number of the employee’s normal working hours during the relevant period of twelve weeks, and
the average hourly rate of pay is the average hourly rate of pay payable by the employer to the employee in respect of the relevant period of twelve weeks . In plain English the sensible way to determine a day’s pay for holiday pay calculation is to determine what was the average pay received over previous 12 weeks and use that. There is no absolute guidance at present but this is a logical approach. Simple isn’t it?
- If the workers have been underpaid in respect of annual leave, is the tribunal entitled to find that this constituted a “series of deductions” (the back-pay issue)? Working Time Regulations 1998
- Previous cases have determined that this is an unfair deduction of wages claim and coukld in some circumstances have gone back to the start of the WTR 1998
- Claims under the Working Time Regulations must be brought within 3 months of when the holiday payment should have been made.
- However The good news is that the employment appeal tribunal found If there is a gap of more than 3 months between any 2 deductions in a chain, the series of deductions is broken
The even better news is that the union UNITE who brought the case will not appeal the EAT decision therefore the exposure is limited. However with immediate effect you should ensure your holiday pay calculations include overtime, commission and other allowances when calculating a day’s pay.
Do you have any exposure? What can you do?
- Reassess (1) allowances, (2) overtime pay, (3) and commission to provide for holiday pay.
- Change commission structures to mitigate future risk? Michael Newman
- For help in this messy area please contact me on 02036407748 or at firstname.lastname@example.org.