Holiday pay

Posted by admin - October 25, 2016 10:27 am Potential new rules for holiday pay calculations

Are you up to date with holiday pay rules?

UK Employers currently have little guidance on how to calculate holiday pay apart from having an obligation to be consistent in their treatment of employees. However, this could all change following a recent case heard in the Court of Appeal (Lock and another v British Gas Trading, July 2016), which may lead to a change in legislation.

Employers could soon be expected to include the following in calculations of holiday pay:

  • Guaranteed and non-guaranteed overtime payments;
  • Commission payments;
  • Work–related travel;
  • Stand-by payments.

These potential changes are likely to have a significant financial impact on businesses in many sectors. Any employer running a commission scheme or making any similar payments which vary with the amount of work done, will be affected.

Entitlement to holiday pay will also accrue during periods of sick leave and employees will no longer be able to be paid for any annual leave not taken at the end of their holiday year. Holiday pay will only be paid where an employment contract is terminated.

Court of Appeal ruling

The Court of Appeal ruled in favour of the employee in July 2016 (‘Lock and another v British Gas Trading’). Mr Lock was successful on the basis that his holiday pay did not reflect any commission which he earned monthly as part of his ‘normal pay’. His commission was based on his sales and therefore should have been included in his holiday pay as it is directly linked to the work done.

The government now has a task force in place to discuss these rulings and decide how and when the legislation should be amended. Changes are coming. Employers should begin to put measures in place to deal with any necessary adjustments to systems and to open communication lines with their employees.

Should you wish to discuss the commission and holiday pay structures within your own organisation then please contact your local MFW office for further advice.