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New Holiday Pay Rules

The Government have been working on what is called “The Good Work Plan” for some time and included in this is some new guidance around holiday pay calculations, the guidance has been furthermore confirmed by some recent tribunal outcomes and although this is guidance not law yet we strongly recommend that businesses follow the guidance with immediate effect.

“An Employment Appeal Tribunal (EAT) has published its decision in the case of Lock v British Gas, upholding Mr Lock’s claim that his holiday pay should have included results-based commission which made up the majority of his take home pay. In reaching its decision, the EAT rejected British Gas’ arguments that previous holiday pay cases including the widely publicised Bear Scotland case (which related to overtime) had been wrongly decided. This confirms that holiday pay should be calculated to include all elements of normal remuneration for certain workers.”

So what are the recommendations?

This decision supports previously decided cases and means that the following pay elements should now be included in the calculation of holiday pay assuming they are linked to the worker’s performance of their contractual duties:

  • commission
  • incentive, productivity and performance bonuses
  • overtime that workers are required to work (there is still no case confirming whether voluntary overtime should be included in the calculation, although many commentators believe it to be very likely that regular voluntary overtime will need to be included in future and this would reflect the decision reached by the Northern Ireland Court of Appeal last year)
  • overtime premiums
  • shift allowances and premiums
  • standby payments
  • payments for emergency call-outs
  • travel and other allowances treated as taxable pay
  • payments relating to the “personal and professional status” of workers, e.g. increments based on seniority, length of service or professional qualifications

A 12 week reference period should be used to make these calculations although it is likely this will increase to 52 weeks at some point in the future.  It is also widely agreed that this is only relevant for statutory holiday entitlement.

We will be provided a more detailed explanation in your next employment law update.  If you would like to receive our employment law emails complete the form below.





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