Will the uncertainty ever end? – Holiday pay calculations

July 2019

by Julie Bann, Consultant Solicitor

In the HR sector, the last thing we wanted was another development in the whole holiday pay calculation saga.  Unfortunately, there has been a new case, albeit a Northern Irish case, which is not directly binding in Great Britain but is very persuasive authority for future appeals on this topic.

To recap, the general principle is that an employee should not be financially penalised for taking statutory holiday, derived from the Working Time Directive (WTD). We are taking here about the first 20 days of any holiday entitlement. Holiday pay must therefore be based on what is normally received for that period. This is a simple calculation when the employee’s salary doesn’t fluctuate, however, it has posed problems (and a tranche of case law) for workers with variable pay.

In summary, the following elements of remuneration should be included in the calculation of holiday pay for WTD leave, assuming they are paid regularly or repeatedly over a sufficient period to count as normal remuneration:

INCLUDED

NOT INCLUDED

Commission payments. Benefits in Kind
Incentive bonuses. Bonuses not linked to worker’s performance
Overtime pay including overtime premiums whether compulsory or voluntary, guaranteed or non-guaranteed. If the overtime is sufficiently regular to constitute ‘normal’ pay. Expenses (incl. travel) reimbursing actual costs incurred
Payments that relate to the “personal and professional status” of workers, such as those based on seniority, length of service or professional qualifications. One-off bonuses and occasional payments
Productivity/performance bonuses.
Shift allowances and premiums (additional rates for working particular shifts, such as “time and a half”).
Standby payments and payments for emergency call-out duties.
Travel and other allowances that are treated as taxable remuneration.

What period can be claimed?

In response to an EAT judgement on calculating holiday, the Government introduced the Deduction from Wages (Limitation) Regulations 2014 (SI 2014/3322) which impose a cap of two years on retrospective unlawful deduction from wages claims, including claims for holiday pay.

Would a gap in erroneously calculating holiday pay break the chain and limit the claim?

The view was that a gap of three months between any holiday pay deductions could ‘break the chain’ and limit the claim.

The Northern Ireland Court of Appeal (NICA) held (in the case of the Chief Constable of the PSNI v Agnew) that a series of deductions is not broken by a gap or three months or more between deductions and to limit a claim in this way could lead to “arbitrary and unfair results”.

In assessing the Northern Irish equivalent to our Employment Rights Act, the NICA decided that there was nothing in the legislation which ‘expressly imposes or could be implied to impose a limit on the gaps between particular deductions making up a series’.  The Court also determined that there was a “sufficient similarity of subject matter, such that each event is factually linked with the next…in the alleged series…”.

To be clear, Northern Irish Law is not formally binding on tribunals in Great Britain so the previous position of the EAT in that a series could be broken by a gap in three months remains good law.  The PSNI has also appealed the decision. Hopefully this will lead to some certainty and definitive guidelines on the issue. At the moment, this case is strong and persuasive authority, which should be considered in how you manage your pay roll during holiday season.

 Key points

  • The holiday pay calculations above only apply to the first 20 days of leave.
  • Holiday pay for the first 20 days leave should be calculated on the basis of ‘normal’ pay had the employee been in work for that period.
  • A decision to circumventing claims and rely on the three-month gap between holidays is a very risky strategy.
  • There is a 2 year back-stop on holiday pay claims.
  • The impact of this case will be directly relevant to those businesses reviewing the engagement of ‘self-employed’ contractors in response to the impending IR35 legislation in 2020.

Please feel free to contact us if you have any queries e-mail julie.bann@jurit.com, call Julie on 020 7060 6474 or speak to your usual Jurit contact.

Please note this paper is intended to provide general information and knowledge about legal developments and topics which may be of interest to readers. It is not a comprehensive analysis of law nor does it provide specific legal advice.  Advice on the specific circumstances of a matter should be sought.

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