Employment Issues / In the News

Unlocking the holiday pay conundrum – what is owed?

beachI appeared on BBC Radio5Live (at 1:51:37) on 8 September 2014 to discuss reports that workers unions are mobilising and preparing for an attack on British employers in the coming months.

This activity follows the European Court of Justice’s May decision in Lock v British Gas which determined that the interpretation of ‘normal remuneration’ under domestic law was not as it should be.

The EU’s Working Time Directive – introduced into British law in 1998 – sets out the rules for the calculation and payment of holiday pay. Since then, employers have typically paid only basic pay when an employee has been on holiday. In Lock, the ECJ said that an employer should also take into account commission when calculating holiday pay. In that case, 60% of pay was commission based.

Further claims have also been made seeking clarification from the courts as to whether other payments are ‘linked intrinsically to performance’ and therefore ‘normal remuneration’ payable during holiday periods. These payments include overtime as well as other income such as anti-social hours or shift allowance payments. Judgment is expected from the Employment Appeal Tribunal at the end of October with strong likelihood that whatever the decision, it is likely to be appealed.

Such is the significance of these cases that the UK Government has already intervened. As the public sector is the country’s biggest employer, it is not surprising that the costs of paying enhanced holiday pay, possibly going back as far as 1998, will be crippling. For private businesses, the risk of a finding in favour of employees could be crippling with experts warning that many will be left insolvent. Going forward, many SMEs could see an increase of four per cent in payroll costs.

What does this mean for business?

The cumulative effect of this potential underpayment of holiday pay may result in significant and unexpected costs for employers. Long before the economic downturn, when manufacturing enjoyed a renaissance and construction was at a record level, overtime in particular became a normal part of the working week. Those good times may be over, but the enhanced holiday costs of such success could not come at a worse time for the businesses who have survived the recession.

In the event that the court finds that accounting for overtime is part of ‘normal remuneration, the three month limitation period for claims to be brought means that only those who continue to be in employment with the same employer will be eligible.

Calls on the Government to introduce emergency legislation to limit the effects of such a finding have, so far, fallen on deaf ears. MPs will have little power over the decision of the European Courts, especially over a liability which could retrospectively apply over the past 16 years.

The unions may be pre-empting the decision of the courts at this time, but once handed down, there is likely to be a great deal of activity in a very short time. In all likelihood, any claims will be stayed pending what will surely be a lengthy appeal process, even if it only goes to delay what now seems to be inevitable.

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