Holiday Pay

It’s now a few months since the ‘Bear Scotland’ holiday pay case. This article discusses the latest developments.
The above case created a rule (it did not change legislation) that says 20 days of holiday pay per year should include non-guaranteed overtime payments. Importantly for employers, the Claimant was denied the opportunity to make a claim for past holiday pay, although leave to appeal was granted on this point.
Following this case there has been considerable analysis of what payments should be included in the calculation of holiday pay. The Bear case mainly considered overtime and the various contractual arrangements to work [overtime]. Overtime can be summarised as originating from guaranteed, non-guaranteed and entirely voluntary working arrangements. The Bear case concerned non-guaranteed overtime, with the employee having to work [overtime] if requested.The Bear case, in the context of holiday pay also considered payments intrinsically linked to work performance, such as allowances and commission. These pay elements have been subject to separate proceedings.
In summary, Employers need to identify whether there are any other payments made to their workers other than just basic pay. Where other pay elements are made, could they be classed as part of an employee’s normal remuneration? In order to answer this question, consideration will be need to be taken of whether there a contractual entitlement to receive the payment, such as in the case of commission. Even if there is not a contractual entitlement to always receive payment, such as in the case of non-guaranteed overtime, is payment made so regularly, that it could be said to be part of a Worker’s normal remuneration?
Where voluntary overtime is only worked a few times a year or a genuinely discretionary and ad-hoc bonus has been paid, then holiday pay can be maintained at the basic rate.
In accordance with case law, a worker must not be financially disadvantaged by taking holiday leave. This will include a ‘delayed financial disadvantage’ such as where commissions will be reduced some months later due to taking earlier holiday leave. The right to holiday leave being a ‘health & safety’ requirement and a Worker must not be dis-incentivised from taking leave.
Where holiday pay is to include other payments other than just the basic wage, then an average to determine a week’s pay is required. If there is a variable element with regard to the worker’s pay, then the preceding 12 weeks average is used. The 12 calendar week formula is set out in The Employment Rights Act 1996 It has been suggested that this 12 week reference period could be extended in the future.
Although the judge declined the arrears of holiday pay claim, the Government quickly announced Regulations to limit unlawful deduction from wages claims to two years These Regulations don’t apply to claims made before 1 July 2015. So anyone with the intention of making a long term arrears of holiday pay claim would have to get the claim in before this date.
So the good news for employers, is that The Bear case settled, meaning that there will be no ‘arrears’ appeal. It will therefore take a new case to try to change this rule. Accordingly, those employers that embrace the case will in effect be ‘drawing a line in the sand’. The reason for this is that the limitation period, which is the period of time that the Employment Tribunal (ET) can hear complaints about, is only the proceeding 3-months. In general ET’s don’t hear historical complaints unless there is a continuation (of the complaint).
Finally, there are likely to be further developments in the area of holiday pay, including changes to legislation.