UK News

Happy New (Holiday) Year - Dealing with holiday in 2015

The subject of holiday pay was never far from the headlines in 2014, with both the Employment Appeals Tribunal (“EAT”) and the European Court of Justice ruling on important cases in this area. 

As a fresh holiday year commences now is the time to ensure that the right amount of holiday pay is paid to employees going forward.

 

WHAT HAS CHANGED?

Under the Working Time Regulations 1998 (“WTR”), employees are entitled to 28 days’ of paid holiday.  Only 20 days’ of this is required by EU Law. 

For most employees, holiday pay was previously based on salary only.

Following the decision of Bear Scotland in the EAT, 20 days of holiday under the WTR (i.e. the element that is derived from EU law) must be calculated so as to include all elements of a worker’s “normal remuneration”.

The EAT acknowledged that employers can determine when the relevant 20 days’ of holiday are taken and suggested that the default position would be that those days would be the first to be taken in the holiday year.

 

WHAT IS NORMAL REMUNERATION?

Normal remuneration means pay which is "normally received”.                                                                                                                                  Normal remuneration can, depending on the facts, include:

  • non guaranteed overtime,
  • commission,
  • allowances,
  • stand by or emergency call out payments,
  • temporary promotion supplements
  • productivity, attendance or performance bonuses.

 

POTENTIAL LIABILITY

If an employee has been paid for holiday in the last 3 months and receives normal remuneration in excess of their basic salary he/she may be entitled to claim for the underpayment of holiday pay.

An employee will only be able to claim for earlier underpayments of holiday pay (a “series of deductions”) if payment for their previous period of holiday was three months’ or less before the payment for their last period of holiday.

Where a company holiday year runs from January to December some employees may have been paid for the first 20 days’ of their holiday entitlement for 2014 more than 3 months ago. This will limit any historic liability.

The Government is concerned about the potential liability facing employers if a ‘series of deductions’ is established.  To address this, the Deduction from Wages (Limitation) Regulations 2014 have been laid before Parliament to limit unlawful deductions from wages claims to two years before the date that any holiday pay claim is lodged in relation to claims presented on or after 1 July 2015.

Example

Summer is entitled to 28 days’ holiday from January to December each year.

She receives a regular “stand by” payment and commission from her employer in addition to her salary.

She took her last 9 days’ holiday over Christmas.  She has taken regular holidays (with less than a 3 month gap in between holiday payment dates) for the last 3 years.

She was only paid basic salary for each day of holiday.

“Together” the union approach her to advise her that she has been underpaid for her holidays.  Summer subsequently lodges a claim in February 2015.

Summer can establish a series of deductions and her claim is not limited to two years of underpayment of holiday under the Deduction from Wages (Limitation) Regulations 2014 because her claim was presented before 1 July 2015.

NEXT STEPS

If you haven’t already done so check:

  • what normal remuneration your employees get in excess of basic salary;
  • who has been paid for holiday in the last three months;
  • whether that pay related to the first 20 days of the relevant employees holiday entitlement; and
  • when employees were paid for their previous period of holiday

In order to avoid any future liability (and potentially break any continuing series of deductions) you should ensure that holiday pay is based on “normal remuneration” in 2015

If potential liability could be large we would advise you to work with you finance department to ensure that there are appropriate reserves to deal with any claim.

 

FUTURE DEVELOPMENTS?

We wait to hear if the parties intend to appeal the decision.  We are aware that the union (Unite) will not appeal the decision on behalf of the employees. 

If an appeal does go ahead then we think it unlikely that the decision to include “normal remuneration” in holiday pay will be overturned.

Further guidance is required on what reference period should be utilised when averaging normal remuneration for holiday pay purposes.  It is currently unclear whether this should be 12 weeks or 12 months.  Without further guidance care should be taken in calculating holiday pay to ensure that the reference period is appropriate.  For example, it is arguable that if commission or overtime payments fluctuate widely during the year, a 12-week period may not be representative.

The Government may introduce further legislation following any report from the taskforce set up to assess the impact of the Bear Scotland decision on employers.  

 

ANY QUESTIONS?

Please contact a member of our Employment Team.

Emma Clark — Partner    

David Widdowson — Partner

Abbiss Cadres - Emma Clark

T: 020 3051 5711

D: 020 7036 8389

E: emma.clark@abbisscadres.com

Abbiss Cadres - David Widdowson

T: 020 3051 5711

D: 020 7036 8388

E: david.widdowson@abbisscadres.com

mma Clark – Partner                                                           David Widdowson – Partner

 

T: 00 3051 5711

D: 020 7036

E: emma.clark@abbisscadres.com

 

 

T: 020 3051 5711

D: 020 7036 8388

E: david.widdowson@abbisscadres.com

 

 

Sophie White – Partner

Abbiss Cadres - Sophie White

T: 020 3051 5711

D: 020 7036 8387

E: sophie.white@abbisscadres.com

 

Resources:

Bear Scotland and others v Fulton and others – http://www.bailii.org/uk/cases/UKEAT/2014/0047_13_0411.html

Deduction from Wages (Limitation) Regulations 2014 –

http://www.legislation.gov.uk/uksi/2014/3322/contents/made