What does the latest Holiday Pay ruling mean to your business?

A number of recent legal changes, most notably the recent case of Fulton v Bear Scotland Ltd, means that businesses really need to be on the ball when it comes to calculating holiday pay.

Businessman relaxing in hammock at beach on sunny day

According to the Working Time Regulations 1998, all personnel are entitled to 5.6 week’s statutory holiday leave. Under the regulations, Personnel must be paid a week’s pay for each weeks leave. However, there have recently been some discussion as to what a “week’s pay” means and what additional payments should be included.

Judgement in the case of Fulton v Bear Scotland Ltd indicated that the calculation of holiday pay based on the Working Time Regulations 1998 is not correct, and holiday pay must now potentially include overtime and may be backdated to (but only for a certain period of time). In the case of Neal v Freightliner Ltd, an employment tribunal ruled that holiday pay should take into consideration overtime work, because although the overtime worked was voluntary, the time was spent carrying out tasks which were required to be carried out under the employee’s contract.

Another recent case regarding commission payments, British Gas V Lock, was referred to the European Court of Justice. The European Court of Justice ruled that the calculation of personnel’s holiday pay should not just be limited to basic salary, but should include commission if this is a usual part of the employee’s remuneration.

These judgements confirm a recent trend which means that other payments such as commission, shift allowance and even some types of bonuses should be included in the calculation of holiday pay. This could signal significant financial implications for many UK businesses, especially as recent Government figures have shown that over 16% of the UK Workforce are paid some overtime on a regular basis.

However, it is not all doom and gloom. The judgement in the case of Fulton V Bear does stipulate that claims for back pay of holiday pay including overtime is not allowed where there has been a break of more than three months between successive underpayments.

But what does all this mean for your business? Well, there is no clear guidance yet as to how employers should deal with these judgements, and it looks likely that the companies involved in the aforementioned cases will probably appeal to higher Courts – which may mean that the judgements are overturned.

It is a timely reminder though, to ensure that the methods you use to calculate your holiday pay are clear and well documented. Triple Three Solutions can help you with this, under our Audit of Procedures service. Triple Three Solutions will review current practices, policies and procedures, and ensure that all relevant documents are completed correctly.