With the holiday season now in full swing it is important to be clear on how much holiday each worker is entitled to take and how to calculate the holiday pay due to workers. In the hospitality and leisure sectors where workers are often employed to work basic hours and then work overtime on top holiday pay can be complicated to calculate. In addition to relevant legislation a number of recent cases have given guidance on this issue.
Working Time Regulations
The Working Time Regulations 1998 apply to all workers and give a statutory entitlement to 5.6 weeks holiday per year which for a worker working 5 days per week equates to 28 days holiday per year. An employer can include Bank/Public holidays as part of statutory annual leave i.e 20 days (4 weeks holiday) plus 8 Bank/Public holidays.
Workers are entitled to statutory holiday as a minimum but it is open to the employer to agree to give them more holiday than this. If this is the agreement then it will be set out in the contract of employment and is called contractual holiday.
The contract or holiday policy should also set out when the holiday year begins. It is common for the holiday year to start on 1 January. If the contract does not state when the holiday year begins then it will start on the day the employee started work for the employer or on 1 October if the employee started work before 1 October 1998. It is advisable to specify the holiday year in your contract or policy so that the holiday year is the same for each employee making holiday calculations much simpler for the business.
How much holiday is an employee entitled to each year?
If an employee starts part the way through a holiday year it can be difficult to work out exactly what their leave entitlement is. The Government has produced a useful tool to assist with this:
Carrying holiday forward
Statutory holiday is 28 days per year and only 8 days of this may be carried forward. If an employee gets additional contractual holiday then the employer may allow them to carry untaken contractual leave forward too.
If an employee is unable to take their statutory holiday leave because they have been on sick leave then an employer must allow the employee to carry up to 20 statutory days forward.
How much do I have to pay an employee when they are on holiday?
Where an employee is entitled to be paid for the holiday they take the amount depends on the hours they work and the way that they get paid.
- Annual or weekly salary – where a full or part time worker works fixed hours for fixed pay then a week’s pay is what they get paid for a week’s work.
- Shift work with fixed hours – a week’s pay is the average number of weekly fixed hours that the worker worked in the previous 12 weeks at their average hourly rate of pay.
- Hourly rate with flexible hours – a week’s pay is the average weeks pay that the worker received over the last 12 weeks.
It is important to note that a worker:
- Can accrue holiday pay when on maternity, paternity or adoption leave;
- Can accrue holiday pay when on sick leave;
- Can take holiday whilst on sick leave.
Are overtime and commission payments taken into account when calculating holiday pay?
In a recent landmark case (Bear Scotland–v- Fulton) the Court decided that non-guaranteed overtime should be reflected within a workers’ holiday pay. i.e. that holiday pay should not just be based on a worker’s basic salary but should more closely reflect the workers’ actual earnings, including some kinds of overtime (i.e. their “normal pay”).
In the hospitality and leisure industries many workers are employed to work basic hours for a basic salary but then agree to voluntary overtime in addition. In the Bear Scotland case the employees’ contracts included non-guaranteed overtime. They were contractually required to work overtime when it was offered but there was no guarantee that the employer would provide overtime. This is very different from genuinely voluntary overtime which employees can chose whether or not to work when it is offered.
Voluntary overtime is where the worker is free to turn down the request to work overtime and there is no obligation on the employer to offer it either. Voluntary overtime is less likely to be part of an employee’s “normal” pay. There is no definitive case law to suggest that voluntary overtime needs to be reflected in holiday pay.
The decision of the Court of Justice of the European Union in the case of Lock v British Gas Trading Ltd was that where commission is intrinsically linked to contractual duties it must be taken into account when calculating holiday pay. However, the CJEU left it to the UK courts to apply this to UK law. The Employment Tribunal implied wording into the Working Time Regulations 1998 which effectively means that where employees have normal working hours and receive commission that should be taken into account when calculating holiday pay. We now await the decision of the Employment Appeal Tribunal later this year which may include further guidance on how commission should be included in holiday pay.
ACAS Guide to Holidays and Pay – http://www.acas.org.uk/media/pdf/5/h/Acas-guide-Holidays-and-holiday-pay.pdf
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.