Holiday Pay in the UK: Recent Employment Law Update

Paid holiday is a fundamental right for workers, and a recent case has brought further changes and clarification regarding this crucial aspect of workers' rights.

The purpose of leave is to ensure that staff have a suitable break from work and receive the appropriate salary during their holidays. The following is a brief overview of the key points relating to holiday pay in the UK.

1. Regular Overtime Included: Previously, holiday pay was typically calculated by reference to basic salary only, excluding additional payments such as overtime. However, a series of legal rulings, including the landmark case of Bear Scotland Ltd v. Fulton, clarified that both guaranteed and non guaranteed overtime should be factored into holiday pay calculations. This ensures that employees receive a wage that reflects their typical earnings and they are not discouraged from taking their leave.

2. Commission: In addition to regular overtime, commission should also be included as confirmed in the case of Lock v. British Gas Trading Ltd. It is intrinsically linked to the performance of the workers obligations under their contract and therefore included in holiday pay calculations.

3. Back stop for Claims: The most recent decision in October in the case of Chief Constable of Police Service of Northern Ireland v Agnew, held that where an employer has consistently underpaid holiday over a number (or series) of leave periods, there does not need to be less than three months between each period to enable the employee to make a claim for the underpayment. A claimant normally has three months in which to bring a claim in the Employment Tribunal. However, as long as the latest of the underpayments is within the three month time limit for bringing a claim, the employee can claim for all leave periods, up to 2 years before.

In calculating the appropriate holiday pay for those with irregular earnings through overtime or commission, the employer should use a 52 reference period to calculate an employee’s average weekly earnings.

Employers should keep in mind these updates to ensure they are paying employees their normal remuneration for leave taken.

For further information and advice on all employment and HR matters, please contact Dawn Gallie on 01935 846233 dawn.gallie@battens.co.uk