December 9, 2015

Holiday Pay: What has changed for 2016?

As most employers move towards their new holiday year, it’s important to know what has changed when it comes to calculating annual leave payments.

Unfortunately, holiday pay has become increasingly complicated and Employment Tribunal cases that are expected to resolve the issue are still ongoing.

Back in July, we updated you on three important precedent cases running through the courts. Even now these cases are not at the end of the road.

So, for 2016, can you be any more certain about what must now be taken into account when assessing holiday pay?

According to ACAS, the following already potentially qualify:

Commission or “similar payments”

Where overall pay depends on work done (e.g. contractual commission schemes intrinsically linked to tasks staff undertake) holiday pay can no longer be restricted to basic pay. The key “commission case” (Lock v British Gas) has been appealed. So there’s at least one further round in respect of that saga!

Guaranteed overtime

This is where you are contractually obliged to provide overtime and the employee is equally obliged to undertake it. For instance, staff must contractually work every fourth Saturday in addition to Monday to Friday.

Irregular Hours

Where staff members have no “normal” hours of work, you assess holiday pay based on average pay during the preceding twelve weeks in which they were paid.

Non-guaranteed overtime – This is where you require staff members to work overtime but is not compelled to offer it all the time. It applies where the employee must undertake the overtime you require.

Sick leave

During sick leave annual leave normally continues to accrue. The employee can take it later or may even request to designate some sick leave as paid holiday. Holiday may even have to be carried forward into a later leave year.

Work-related travel

This is travel for work purposes. It’s not the employee’s “commute” to and from their home and normal place of work. Where you pay staff for such travel it potentially qualifies for holiday pay purposes.

What about purely voluntary overtime?

Back in July, we told you about the Northern Ireland Court of Appeal judgement in Patterson v Castlereagh Borough Council.

That decided that overtime staff volunteer to do may be deemed “normal remuneration” if it’s sufficiently regular. Northern Ireland judgements are not binding elsewhere in the UK and there is no legislative definition of what is “regular” in any event.

So should you include voluntary overtime when assessing holiday pay in 2016?

Arguably, if the overtime is an “appropriately permanent feature” of the work, you could do so. But do you have to?

The answer currently is no. If you decide not to, a sensible course of action would be to budget an appropriate contingency sum just in case.

If you receive approaches from your staff to include such payments in holiday pay, please discuss this with our advisors. Otherwise, there are some useful factors to consider.

  • Anybody making a claim must have had an alleged underpayment for holiday pay that has taken place within three months of lodging an employment tribunal claim.
  • Where a claim involves a series of underpayments, any break of more than three months between those underpayments breaks the chain.
  • The impact of the Deductions from Wages (Limitation) Regulations 2014 imposes a two year maximum on any claim made after 1st July 2015.
  • While the statutory minimum for annual leave in the UK is 5.6 working weeks, the judgements only affect the first four weeks of holiday i.e. as set out in the original Working Time Directive.

Some of our clients have already decided to include regular voluntary overtime in holiday payments. However, we are not automatically changing principal statements (contracts of employment) at review.

We will only do so if and when the situation becomes definitive. If you want us to add wording to relevant principal statements now or discuss your risks and options please contact us.

By Mike Fitzsimmons

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