News and Updates

How much holiday pay?

The law as it relates to annual leave is currently in a process of evolution and change.
 
We have seen 2 cases recently which address the question of how to calculate the “normal remuneration” that employees are supposed to receive when taking holiday under the Working Time Regulations 1998.  It seems that basic salary only may not be “normal remuneration” for these purposes.
 
Neal v Freightliner Limited (ET/1315342/12)
In the Neal case, the Tribunal held that an employer should have taken a worker’s overtime payments into account when calculating his holiday pay in respect of the minimum 4 weeks statutory annual leave required by the Working Time Directive.  The employer has lodged an appeal and the EAT is due to hear it on 30 and 31 July 2014.  
 
Lock v British Gas Trading and others (C-539/12)
On 22 May 2014, the ECJ held in the Lock case that where a worker's remuneration includes contractual commission, determined with reference to sales achieved, the Working Time Directive precludes a national law that calculates statutory holiday pay based on basic salary alone. 
Under Article 7, workers must receive their "normal remuneration" during annual leave.
During his period of annual leave, Mr Lock was not able to generate any commission during his holiday. This led to a financial disadvantage, even though this took effect some weeks after his holiday period. 
A reduction in a worker's remuneration that is liable to deter him from exercising his right to take annual leave is contrary to the objective pursued by the WTD. The fact that the reduction in remuneration might occur some time after the holiday period is irrelevant.
Mr Lock's commission payments were directly (and intrinsically) linked to the performance of the tasks he is required to carry out under his employment contract. Therefore, commission must be taken into account in the calculation of his statutory holiday pay. 
The ECJ stated that the methods of calculating the commission element of holiday pay must be assessed by the national court or tribunal "on the basis of the rules and criteria set out" by ECJ case law "and in light of the objective pursued" by the WTD. The tribunal should focus on the average commission earned "over a reference period which is considered to be representative, under national law".  When this case falls to be applied by the domestic courts or translated into domestic law, the reference period could be anything between 12 and 52 weeks prior to the date on which the leave is requested.
 
Other holiday developments
The government is currently consulting on various proposals regarding annual leave including: 
 
(a) Bringing UK law into line with recent ECJ judgments so that workers who are unable to take annual leave during one holiday year can carry unused leave over to the next holiday year. 
 
(b) Amending the Working Time Regulations 1998 to allow leave which is accrued but untaken due to absence on maternity, adoption, parental and paternity leave (and, in due course, to the shared parental leave (see below)) to be carried over into the next leave year. 
 
(c) Amending the current prohibition against "buying out" any statutory leave under the WTR 1998 to allow employers to buy out the additional 1.6 weeks' annual leave entitlement under regulation 13A of the WTR 1998. 
 
(d) Requiring employees to carry over all or part of the additional 1.6 weeks' leave entitlement under regulation 13A of the WTR 1998 in cases of genuine overriding business need (as defined by guidance). 
 
In light of the above, employers should expect to see some changes in the way it deals with holiday.  In particular, in sectors where the payment of commission to employees is common, employers should be preparing to adjust its calculations of holiday pay to include commission as part of “normal remuneration”.
 
For further information on the issues raised in this article, please contact Helen Wyatt on 020 7925 8083 or by email at helen@spencer-wyatt.com.
 

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