Increased holiday pay in the UK
For those of you who have already signed up for HRSfB Newsletters you will know this has been coming for some time with many case rulings heading in this direction.
The Court of Justice of the European Union (CJEU) has consistently stressed the need for normal remuneration to be maintained during the period of holiday – as otherwise the financial disadvantage suffered might deter workers from taking leave.
This week the Employment Appeal Tribunal made a landmark decision and handed down a judgment in the Bear Scotland v Fulton (and conjoined cases). Now the decision is made there is bad news, but also a little good news for employers.
The bad news?
It has now been ruled that many elements of intrinsic pay previously excluded from holiday pay calculations must now be included by employers. This will obviously increase your fixed costs.
Basically, it means that workers are now entitled to be paid a sum of money to reflect what they would normally be paid if they were in work. The EAT held normal non-guaranteed overtime (overtime which the employer does not have to offer, but the employee must work if offered) is part of normal remuneration and must be included in holiday pay. As must any other payments which forms part of normal intrinsic pay including: shift allowances, comparable payments; travel time payments, (which exceed expenses incurred and so amount to additional taxable remuneration) and commission.
It is early days, but it seems to say if a person would have been paid an amount if in work, then they should suffer no detriment for taking holiday and should be paid the same. As current cases continue to be settled this will become clearer and clearer.
So the good news?
As the various cases dealing with these issues have evolved it had been discussed that, if it was ruled that these other payments (above base pay) should be included then workers would be able to claim for underpaid leave as far back as 1998. This would have been a nightmare for employers. Not only in additional costs but the administration costs.
However, any claims in respect of underpaid holiday pay now seem to have been given a 3 month time limit to make a claim from the date of any such underpayments.
A claim for a shortfall in holiday pay would count as a deduction from wages. Such claims must normally be brought within 3months of the deduction. Where there has been a “series of deductions”, then technically all the underpayments in the series can be recovered. So you can see where the argument came from that a worker could claim for the shortfall in their holiday pay for the whole of their employment back as far as 1998 – as long as they made a claim within the 3 months of the last ‘deduction’.
Fortunately EAT held that, if there is a gap of more than three months in any ‘alleged series of deductions’, a Tribunal cannot hear any previous claims where such a break has happened. Of course employees can argue it was not reasonably practicable to bring their claims in time – we will have to wait to see if the case law develops on that point.
So if there has been a 3 month gap between an employee last taking and being paid for holiday it breaks the series. And remember this change is only relevant at the moment to the 4 weeks holiday under the WTD. So if the last holiday was deemed to be in excess of this (WTR required holiday) then all the indications so far is that this would not count. And who decides if holiday given counts under the WTD o the additional 1.6 weeks under the WTR – you do as the employer.
Just to clarify, the ruling is only relevant to the first 4 weeks holiday under the Working Time Directive (EU law) which entitles workers to 4 weeks’ paid leave. This EU law is implemented in the UK by the Working Time Regulations 1998 (WTR). The WTR gives workers 5.6 weeks’ leave. The extra 1.6 weeks given under the WTR are not affected by this ruling.
The Employment Appeal Tribunal refused to grant a reference to the Court of Justice of the European Union, but gave permission to appeal to the Court of Appeal (stating that ground 3 was the most significant point for the Court of Appeal to consider). So we will have to wait and see.
Action points you may want to think about
- Decide in the short term whether to pay the holiday at different rates or equalise (WTD 4 weeks; WTR an additional 1.6 weeks or more if contractually more is given)
- Moving forward evaluate exactly what constitutes ‘normal pay’ in your business.
- Unless you have existing claims waiting for this decision, you need to decide how to deal with potential claims for back pay. Do you take the lead and agree with your employees the back pay you will settle?
- Longer term, you may want to review how you structure work in order to minimise the increased liability for holiday pay. Options might include offering voluntary overtime instead of non-guaranteed overtime, using bank or agency staff to cover periods of increased demand rather than offering permanent staff overtime, revising commission plans to schedule payments at a time which impacts less on Regulation 13 leave and preventing leave from being taken at certain times of year.
From what the current news is saying, it would seem that 3 months from the new rate being paid, any previous right the worker had to make a claim will have elapsed. Of course in the interim time they still could decide to make a claim.
Hello, I’m Carole Thomson and I provide practical HR support and advice to small businesses. Helping them with the people side of their business. First to ensure legal compliance, but then using HR to ensure they get the very best performance from their people.
I hope you have found this brief guide useful. There are so many changes in the world of Employment Law. I endeavour here to provide useful updates for my clients and potential clients – to help keep you updated.
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