It really is summer despite the weather and staff are planning their holidays. In the past it was thought to be fairly easy to calculate holiday pay but following recent case developments what was something quite simple has become much more complex. Currently practice is to calculate employee’s average weekly wage by referencing the previous 12 weeks remuneration but for circumstances where overtime is skewed due to seasonal fluctuations it may be better to go back over the previous 52 weeks (see below)
I have attempted to provide below a summary of what’s in and what’s out.

Round-up of holiday pay elements
The position can be summarised as follows:
Pay to be included

Pay that is normally received including:
• Contractual results-based commission ordinarily received;
• Guaranteed, compulsory overtime payments;
• Non-guaranteed and voluntary overtime payments provided the overtime worked is broadly regular and predictable; e.g. an ambulance driver who is forced to prolong his shift to attend a sick patient
• Regular out-of-hours standby payments and call-out payments;
• Payments intrinsically linked to the performance of the worker’s tasks under the contract of employment, including allowances for performing a certain task, or at certain times, or in certain conditions e.g. productivity bonuses;
• Payments which relate to professional and personal status.
Pay to be excluded
• Expenses which reimburse workers for actual costs incurred e.g. travel expenses.
Grey areas (not so far considered by the courts)
• Annual bonuses;
• Tips and service charges.

Future developments

It will not be long before we also see further developments in relation to holiday pay, this time relating to the reference period for carrying out the calculation.  In April 2020, for workers with variable remuneration, the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 will increase the reference period for calculating an average week’s pay from 12 weeks to 52 weeks.  No doubt, this will require employers to review their holiday pay calculations again.