Pay for holiday periods is in the spotlight following rulings by the Employment Appeal Tribunal that overtime should figure in the calculation of holiday pay. What are the implications of the latest developments?
What is the background to this decision?
Two months ago, we explored the decision by the European Court of Justice (ECJ) on holiday pay. The court’s conclusion was that, when on holiday, a worker is entitled to not just basic pay but also any other payments “linked intrinsically” to performance of tasks the worker is required to carry out under the employment contract. This was to ensure that workers were not discouraged from taking annual leave from work. In that case, the court ruled that holiday pay must include a sum relating to commission payments earned when the employee was at work. Aside from commission, it was then left to the UK courts to decide what, if any, other elements should be included within holiday pay for the same reason.
What does this most recent decision tell us about that?
This latest decision of the Employment Appeal Tribunal (EAT) confirms that shift premiums, allowances and required overtime will almost certainly fall within holiday pay requiring to be paid. What is less clear is whether other payments, such as annual bonuses and voluntary overtime, must also be included. These issues will only be determined in a future case. The ruling also only applies to the four weeks’ holiday pay required by the Working Time Directive, rather than the additional 1.6 weeks leave given in the UK by the Working Time Regulations 1998.
Has this issue now been settled, once and for all?
Unfortunately not, it could take years before we have a final answer from higher courts. While the EAT has given a clear steer as to how the decisions of the ECJ are likely to be applied, it is highly likely we will see further appeals. This, however, represents the law as it currently stands and, until then, the decision will bind employment tribunals hearing similar claims.
Is the government taking any action?
The government has established a task force to look at the implications of the decision. However, it is not clear what action it might take, as it does not have any authority over these court decisions, unless legislation is brought into force to address the impact.
What action should employers take now?
A sensible risk management strategy for employers would be to review current holiday pay arrangements, so that exposure against any claims may be minimised. Focus should be placed on the areas of highest risk, where courts have already determined elements that should be included within holiday pay. By paying the correct holiday pay to employees now, it may be possible to break the link with any series of underpayments to date, making it more difficult for backdated claims to be pursued by employees.