Holiday Pay Calculations: Who Should Get What and When

BlogHR Advice Posted: Thursday 15th June 2017 by

Employment legislation, especially related to payroll and holiday pay, can be difficult to digest and can often cause confusion for HR managers and payroll departments – especially those in smaller businesses. To offer a helping hand, here’s some practical advice about what your employees are legally entitled to, to ensure your company remains compliant.

Acas states that under the Working Time Regulations 1998 (as amended), workers (including part-timers and most agency and freelance workers) have the right to:

6 weeks’ paid leave each year (from 1 April 2009) / 28 days for someone working five days per week. This must be taken as holiday and not paid to the worker in lieu of time off

Payment for any untaken statutory leave entitlement (pro rata) must be paid to the worker on termination of employment

UK public holidays can be counted towards the annual leave entitlement.

This seems like quite an uncomplicated and easy to manage calculation if all your employees work the same number of hours every week and are all paid an annual salary with no bonus payments to account for.

What happens then, when you throw commission, part-time hours and sick leave into the mix?

Holiday Pay and Commission Payments

In the recent court battle of Lock vs British Gas, Mr Lock, a salesman, claimed at an employment tribunal that British Gas owed him money on the basis that his holiday pay did not reflect any commission that he would have earned had he been working.

The European Court of Justice (ECJ) ruled in October 2016 that because the commission that Mr Lock would normally receive was directly related to the work he carried out on behalf of British Gas, then his commission payments should be considered when calculating holiday pay.

Since this ruling, commission must now be factored into calculations for holiday pay for all workers who are normally entitled to receive commission and bonus payments.

According to Acas: Results based commission must be factored into holiday payments for the 4 weeks of statutory annual leave required under European law. There is no requirement to do this for the additional 1.6 weeks of statutory annual leave provided under UK law.

To complicate matters, however, it is not yet clear how the calculations should be made, or how Brexit negotiations will affect these calculations. Acas are continuing to monitor this situation.

Holiday Pay and Overtime

Currently, there is no case law that determines whether voluntary overtime (where there is no contractual obligation for a worker to work extra hours over and above what they are paid for) should be taken into account when calculating holiday pay. This may change with up and coming Employment Appeal Tribunal (EAT) cases this year.

Guaranteed overtime (where an employer has a contractual obligation to guarantee overtime payments) however, must be included in holiday pay calculations. The same applies for non-guaranteed overtime (where there is no obligation for an employer offer overtime, but if they do, then an employee is contractually obliged to work).

Holiday Pay and Sickness

If a worker is absent due to sickness then holiday pay still accrues at the normal rate. However, if a worker is unable to take holiday due to sickness then they must be given the opportunity to carry over any unused days until they are able to take it. Alternatively, the worker may choose to use paid holiday entitlement to cover any unpaid sick leave.

We hope this helps with some of the more common questions related to holiday pay calculations. If you need support to monitor or calculate holiday entitlement for your employees, our HR experts are on hand to answer your questions.

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