Holiday Pay Ruling

Holiday Pay Ruling

The introduction of the new holiday and overtime legislation on the 4th November 2014 means that employees holiday pay should reflect the employees ‘normal pay’ rather than just the employee’s basic salary.

So what regular payments should holiday pay include?

  • Commission
  • Overtime
  • Allowances linked to status or performance
  • Shift Payments (for example unsocial hours payments)
  • Travel Supplements (not expenses claimed)
  • Contractual bonuses (at this stage not discretionary ones)

As this right stems from the European Working Time Directive which only gives the right to four weeks holiday to full time employees (not the 5.6 weeks for employees in England and Wales), the pay components listed above need only be paid for those four weeks of leave guaranteed under EU Law. Therefore any holiday days offered in excess to 20 days a year will not be affected.

What holiday pay must be compensated to employees following the change?

An employee must claim for the underpayment of holiday pay within three months of taking their last holiday.  If more than three months has elapsed since their last holiday they cannot bring a claim.  Providing there is no more than a three month gap between consecutive holiday periods the employee can claim for successive underpayments.

At the present time this has been limited to a 2 year period.

The calculation of a week’s pay will be the average amount the employee was paid in the 12 weeks immediately preceding the holiday.

Please note the requirement to pay ‘normal pay’ (including regular overtime) does not apply to bank/public holidays.

What action should employers take?

Employers need to understand how many employees the change to the ruling will affect by knowing what part of their workforce receives commission, undertakes regular overtime, or if their staff receive any other regular payments that are within scope.

Black Dog HR Consultancy Ltd can support you in doing this and furthermore assist you in updating all relevant documentation including your Company’s Terms and Conditions of Employment, Staff Handbooks and Holiday Policies, which clarify how the holiday pay calculations will be made.  No matter what working pattern applies to your staff Black Dog HR Consultancy Ltd can assist you in calculating holiday pay and work with you to ensure your payroll system can cope with the new requirements as a result of this change.

Please feel free to call for advice on Tel: 01280 817341