NEWS EXTRA
HOLIDAY PAY PAIN E
Adam Bernstein looks at how employers need to be cautious when dealing with holiday entitlement.
mployers often suffer from holiday pay headaches, confused about what to include or what reference period to use when calculating what is due. Mistakes can be very expensive should they end up in a tribunal.
Basic holiday rights Before we go into the detail, Andrew Rayment, a partner in the employment team at law firm Walker Morris LLP says that it’s important to look at the key entitlements. “In essence,” he says, “workers are entitled to a minimum of 5.6 weeks paid annual leave (that’s 28 days for someone working five days a week); bank/ public holidays can be included in this minimum entitlement. Of this 5.6-week entitlement, four weeks are granted by European law (known as Euroleave) and an additional 1.6 weeks are granted by the UK’s own Working Time Regulations 1998.”
He says part-timers are entitled to exactly the same level of holiday, but pro rata. For example, someone working four days a week gets 22.4 days leave. Employers can, within reason, control when workers take their holiday. But if a worker leaves their job, they should be paid for any holiday they’ve accrued but not taken.
But there is another consideration that Rayment points out: “Employees continue to accrue paid holiday, as if they were at work, throughout maternity, paternity, adoption and shared parental leave (known as family leave).
Employees may choose to take this before or at the end of the family leave period or a mixture of both.” He adds that employers may have to allow the employee to carry over (into the next leave year) more annual leave than is usually allowed to ensure that the employee does not lose any of the holiday accrued during the period.
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Overtime, commission and holiday pay For most it’s a given that basic pay is used to work out holiday pay, but what about overtime? The answer to this question is, says Rayment, that “the calculation must use an employee’s ‘normal pay”’. Contractual overtime is what an employer is contractually obliged to offer and that which employees are required to work; it must always be included in holiday pay. But as Rayment points out, “the Employment Appeal Tribunal (EAT) has made it clear that regular overtime that is not guaranteed, but that employees are expected to work if and when it is offered, must also be included.”
But what of voluntary overtime? On this Rayment notes a Court of Appeal decision which considered whether voluntary overtime must be included in the calculation of holiday pay. He says that “it was held that voluntary overtime must be included in holiday pay if it is ‘part of a pattern of work that is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration’”. In simple terms, Rayment says that this means that while each tribunal will decide on the facts of each case, as a general rule of thumb, the more regular the voluntary overtime, the more likely it should be included in holiday pay. Just as interesting, reckons Rayment, is the effect of commission on the calculation of holiday pay. In particular, he says that another Court of Appeal decision “made it clear that results-based commission should be taken into account when working out holiday pay.” For those wanting to calculate holiday pay accurately, it shouldn’t be forgotten that the right to be paid overtime and commission in holiday pay stems from European case law and therefore applies only to the four weeks’ minimum annual leave provided under EU law, not to the additional 1.6 weeks provided for by the domestic
Working Time Regulations 1998. This, says Rayment leaves “employers needing to decide how they will treat the additional 1.6 weeks’ statutory minimum leave; many have taken the view that it is preferable to simply include overtime in all holiday pay to avoid administrative confusion.”
Part-year workers To this mix comes a recent case which decided that those who only work part of year are also entitled to the equivalent of a ‘week’s pay’ for each week of leave. For workers who do not have normal working hours, a week’s pay is the worker’s average weekly pay in the 12 weeks before the first day of holiday, excluding any weeks in which no remuneration was payable. The 12-week reference period referred to in the case will be increased to 52 weeks with effect from 6 April 2020.
Long-term sick leave Employers shouldn’t lose sight of workers who have not taken holiday because they’ve been on long-term sick leave. They are entitled to carry over four weeks’ unused holiday unless the employer allows more. This holiday must be used within 18 months from the carry-over date.
Hidden workers Another trap awaits employers who engage ‘self-employed’ contractors; they should be aware of the potential risks of such individuals bringing holiday pay
claims. The European Court of Justice held in a 2017 case that anyone with ‘worker’ status must be able to carry over paid annual leave if they have not had the opportunity to take it or have not taken it because they have been regarded as ‘self-employed’ and therefore didn’t think they could get paid for holidays.
Breaching the law With the complexities of the law established, what penalties await employers that break the law? Rayment says it’s simple – “workers who believe they have been underpaid holiday pay can bring Employment Tribunal claims for back-payment,” adding: “where there has been a systemic failure to pay the correct amount for a whole workforce the potential exposure can be significant. The fact that the employer may not have realised they were underpaying is not a defence.”
However, notice should be taken of the Deduction from Wages (Limitation) Regulations 2014 which impose a two year back pay limit on deduction from wages claims.
Even so, claims may be made without any real cost to the employee since the tribunal fees regime was struck down in the summer of 2017.
The law surrounding holiday entitlements is a quagmire for employer and employee alike. Firms ought to take good advice if in any doubt about their obligations and employees rights.
www.buildersmerchantsjournal.net March 2020
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