Historically paid holiday has been based on ‘basic pay’ only in the UK. However, after a recent Employment Appeal Tribunal decision, this approach has been deemed not in line with European Working Time Directive. As such, employers now must take into account overall remuneration when calculating holiday pay for employees.
Under EU Law, full time employee’s statutory entitlement is four weeks holiday pay for each year. This works well as a general rule however variations around this can cause some confusion. For example, many employers include Bank Holidays within that period, part time workers qualify on a pro-rata basis and self employed personnel receive no entitlement at all.
So what does this mean for you?
You may need to now recalculate your employee’s holiday pay to take into account overtime and commission! The EAT ruling stated it is wrong to only take into account basic pay when calculating how much an employee should be paid while they are on holiday.
By law all full time workers on a five day working week are entitled to 28 days paid holiday (5.6 weeks) per annum. Bank & Public holidays can be included within that annual leave. Part time workers are entitled to the same level of holiday pro rata. If an employee leaves without having uses up their accrued holiday, it should be paid.
Based on the ruling precedent has been set for how holiday pay will now be calculated. The new calculations will only apply to the EU Law’s four weeks (20 days) holiday requirement and does not included the UK 1.6 weeks additional time for bank and public holidays or any discretionary holiday on top of that. Therefore, from now on, Companies should take into account commission and overtime when calculating holiday pay covering the 4 week requirement for certain workers.
Harries Human Resources & Birketts LLP will be holding a free Q&A and business to business networking session on Friday 23 January 2015, 9:30am at6 Grange Way, Whitehall Industrial Estate, Colchester, Essex, CO2 8HG to answer all your questions.
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