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Calculation of holiday pay due to workers taking annual leave

Flowers v East of England Ambulance Trust is a recent English Court of Appeal case, concerning voluntary overtime and holiday pay and how this affects ambulance crews.

As you will, I suspect, continue to have ongoing holiday pay issues ‘in the field’ (both in the Ucatt -construction- sector and elsewhere) and as this Flowers decision was just issued, I thought this might be a useful time to summarise where the law in Scotland is currently at, with regard to calculation of holiday pay, mention 1-2 changes coming in soon, and highlight 1-2 areas of ongoing legal uncertainty in this area.

Here are some bullet points then to summarise:-

  • The entitlement to paid annual holiday leave under the Working Time Regulations 1998 (as amended) is for ‘employees’ & ‘workers’, but does not extend to those that are self-employed.
  • EU law allows for minimum of 20 days, but in UK there is additional 8 days of minimum annual leave added to the entitlement (under WTR 1998 as amended). Contracts can of course extend the annual entitlement beyond the minimum days.
  • The requirement of adding in additional parts of a worker’s ‘normal pay’ to the worker’s basic pay only applies to the 20 days of minimum annual leave holiday required under EU law (‘EU Leave’) and not to additional days of annual leave of UK workers provided for under WTR or under contract (unless the worker’s contract says that these extra days of holiday will have the additional elements added in).
  • EU core principles behind holiday pay are: 1) that an employee/worker receives their normal rate of pay when they are on periods of annual leave – (British Airways PLC v Williams), 2) during holidays ‘remuneration must be maintained’ (Robinson-Steele v RD Retail Services ltd) and 3) that workers should not be discouraged from taking rest leave because of worries about their pay being lower during holiday/rest breaks. They should not be penalised by going on holiday by being paid at only the basic rate, when they normally receive additional payments
  • Common additional payments to consider for inclusion include 1) expenses 2) ‘status payments, 3) commission, 4) overtime and 5) bonuses. (see below)
  • Payments (to be included in calculation of holiday pay) have to be sufficiently ‘regular’ and be “intrinsically linked” to the work of the individual (see Williams case)
  • Expenses reimbursed, or other payments to cover ancillary costs/expenditure by the worker are not classed as pay as these are simply designed to reimburse an employee/worker for costs incurred (Williams case)
  • ‘Status’ payments (ie those relating to the professional and/or personal status of the worker (eg relating to seniority, length of service, qualifications, specific skill-set) are to be included in holiday pay calculations (see Williams case and also Parvianen EU court case)
  • Commission payments made regularly are to be included – (Lock v British Gas Trading ltd) NB Commission in Lock made up 60% of pay.
  • Guaranteed contractual overtime is already included under Employment Rights Act 1996
  • Sufficiently regular “Non-guaranteed” overtime (which the worker is obliged to do if asked) is also to be included (see- Bear Scotland v Fulton)
  • Cf in Bear Scotland ­– stated that payments to count as ‘normal’ pay must be made for a sufficient period of time to be regular, but does not give criteria. ‘It is a question of fact and degree.’ No real clarity on this point in cases decided thus far.
  • Voluntary overtime: to be included (see Dudley v MBC v Willets and the Flowers case below)
  • No clear decisions yet regarding bonuses of varying types.
  • Bonuses that relates to performance, attendance and productivity, if regularly made will probably be included
  • One-off yearly bonus payments, particularly those not linked to a worker’s performance of his duties would probably not.

You can see therefore that many of the battles have gradually been won over the past 10-15 years, however it is unclear what regularity of payments (ie within the 12 week period immediately before the specific holiday) is needed for a payment to be classed as ‘normal’, It is also not clear what forms of bonus should form part of the holiday pay calculation.

Note also:-

  • From Bear Scotland – arrears of pay which are more than 3 months apart will interrupt the ‘series of deductions’ and prevent earlier unlawful deductions of pay being linked to the more recent series.
  • Back-dated arrears claims will be restricted in any event to 2 years under 2014 Regulations
  • The current reference period for assessing ‘normal’ weekly pay is 12 weeks ie 12 week average in lead-up to the holiday in question.
  • From April 2020, however this reference period will increase to 52 weeks (this might help include certain slightly less-regular payments, if tribunals then go back 52 weeks prior to the holiday, in assessing this ‘regularity’ of payment.
  • Those on sick leave (or maternity leave) cannot take annual sick/maternity leave at the same time as a holiday (and vice versa). Annual holiday entitlement (if unable to be taken in one holiday year because of sick leave or maternity leave) should roll over to next year.
  • This rolling over, however, will be restricted to the first 20 days of annual leave entitlement(EU leave), and will also not roll over indefinitely
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