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Employment News – Holiday Pay Calculations

Holiday Pay Calculations

The cases of British Gas v Lock and Bear Scotland Ltd and others v Fulton and others, addressed issues of what payments should be included in calculating holiday pay. These cases addressed commission payments and overtime. However, the results have led to a number of other payments being considered.

Holiday pay should be calculated on the basis of the pay the employee normally receives.

So that includes:

  • Salary
  • Overtime guaranteed under the employment contract
  • Overtime that is the employer is obliged to offer and that the worker is required to work
  • Overtime that is not guaranteed but is compulsory if the employer requests it, provided that it is worked regularly
  • Voluntary overtime if it is part of a pattern of work that is sufficiently regular for payment to amount to normal remuneration. This will be a matter for the Courts to decide in each case on the facts.
  • Non-guaranteed overtime payment applies only to the four weeks’ minimum annual leave under EU law and not the additional 1.6 weeks’ statutory minimum leave under the Working Time Regulations 1998.
  • Commission if linked to the performance of tasks the worker is employed to do (e.g. commission on sales). The Courts did not make the reference period clear.
  • Commission that will not reduce if the worker take holiday need not be included, (e.g. commission for completion of a project or introducing a client).
  • Standby and emergency call-out payments.
  • Bonus, maybe. A bonus paid to incentivise or to reward the performance of tasks will normally be intrinsically linked to the role and should be included in the calculation of holiday pay. Annual discretionary bonus or a team performance bonus is a grey area. These are normally linked to duties or role so there is an argument to say holiday pay should include a sum in respect of such a bonus. Most employers take the view discretionary bonuses are not normal pay and therefore do not include them.

Information is correct at the time of posting.

Please contact Butcher Andrews for current advice on older articles.

Wendy Davison – Telephone 01328 852831 – email [email protected]


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