The holiday season is now in full flow as is a debate as to
what a worker should be paid whilst they are on holiday. The entitlement to holiday pay comes from a
European Directive. It was introduced in
the UK in 1998 by the Working Time Regulations (WTR). The Directive requires
that workers are paid whilst on holiday but does not stipulate the rate of
pay. The WTR refer to the concept of a ‘week’s
pay.’ In 2004 the Court of Appeal held
that overtime should not count towards the calculation of holiday pay unless it
is both compulsory and guaranteed. This
position is now being challenged. In a number of recent cases, the courts have
held that payments which are intrinsically linked to the performance of duties,
such as overtime and commission payments, should continue to be paid during
holiday.
Two cases challenging this point were held in the Employment
Appeal Tribunal (EAT) at the end of July.
We do not know when the EAT will make their decision in these cases and there
may be further appeals. What is clear is
that the question of what a worker should be paid whilst on holiday is not
going to go away.
The outcome of these cases could have huge financial
implications for employers. John Lewis is
reported to have settled a holiday pay dispute with its staff last year for £4
million. If the courts decide that holiday pay should include overtime
payments, there will be increased on-going staff costs. What is perhaps more worrying is that workers
whose holiday pay has not included an element to reflect overtime payments, may
also be able to backdate their claims to 1998 when the WTR were
introduced. We do not yet know when we
will have a clear answer on this issue.
For now, it is prudent to review holiday and overtime pay arrangements to evaluate the potential exposure for your business.