Holiday Pay Judgment – Act Now
In a landmark judgment on holiday pay, in the case of Bear Scotland -v- Fulton the Employment Appeal Tribunal has confirmed that the calculation of holiday pay MUST include payments for overtime that an employee is required to work.
If you work out holiday pay based upon basic pay without taking into account required overtime you are not paying in compliance with the law.
Holiday pay impacts every business with employees, and many will now have to recalculate costs. Please do not delay, you need to act now.
It is very important that you review your practices. We can help with this, please contact me Lisa Kennery or firstname.lastname@example.org for further help and advice.
Employees can potentially claim back to 1998. For a legal perspective please see a blog below from Amy Stokes.
ACT NOW! HOLIDAY PAY MUST INCLUDE OVERTIME AND COMMISSION PAYMENTS
The Employment Appeal Tribunal decision in the case of Fulton v Bear Scotland and associated cases has been handed down this week. This held that the calculation for the amount holiday pay must include non guaranteed overtime. Under current legislation, only basic pay counts when calculating holiday pay.
This follows the other recent European decisions which confirmed that commission and other enhancements should also be included in the holiday pay calculation.
These cases are all as a result of the European Working Time Directive is which is in place to protect workers health and safety. A crucial part of that is of course that workers need to have holidays. The purpose of providing payment for annual leave is to put the worker in the same position as he would be if he had not taken the leave. It has been made very clear by these cases that little must discourage or prevent a worker from taking that holiday.
What is the risk?
This decision has retrospective effect. This means that employees and workers can potentially claim for the shortfall in historical holiday pay back to 1998, when the Working Time Regulations were introduced. There is some light as the EAT did state that where there was a gap of more than 3 months between previous ‘underpayments’ then this will break the chain of underpayments meaning the worker may lose the right to bring the claim beyond that point.
This also only currently applies to the basic 4 weeks leave granted under the European Directive and not the additional 1.6 weeks under the Working Time Regulations. The liability for employers is still potentially significant.
What to do now?
Take action immediately. Whilst this case will likely be subject to an appeal, as there is a 3 month cut off period for making a claim in the Employment Tribunal, if payments are corrected now this may limit or even avoid the scope of claims.
It is difficult to know how to calculate the correct amount of holiday pay as no guidance has yet been given. One solution could be to work out a 12 week average of pay including overtime and commission prior to the leave and pay on this basis.
We are already carrying out fixed fee holiday pay audits for clients. If you would like to us to review your holiday pay practices to assist you with assessing what you should be including in your holiday pay and seek to reduce claims then get in touch. We can also assist you with assessing the potential financial impact this could have if claims are issued.