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Employers Beware: Holiday Pay Could Return To Haunt You

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Employers Beware: Holiday Pay Could Return To Haunt You

Employers Beware: Holiday Pay Could Return To Haunt You
December 01
07:41 2014


MMS 3As the dust begins to settle on the recent Holiday Pay Cases judgment by the Employment Appeal Tribunal, employers are being urged to scrutinise their employees’ contracts and be prepared for any potential backdated claims.

Amanda Jones explores the practical implications of the judgment for Scottish hospitality businesses…


The Working Time Directive: What does the law say?

The Working Time Directive (2003/88/EC) entitles a worker to four weeks’ holiday in a holiday year. Introduced as an EU health and safety measure to ensure staff take an appropriate number of holiday days each year, the WTD is implemented by the Working Time Regulations 1998. This entitles staff to a more generous 5.6 weeks’ leave per year, and requires employers to remunerate at the rate of at least a week’s wages. For variable salaries, this can mean averaging the amount paid over the 12 weeks preceding the holiday. Until recently, this had not proved contentious…

So what is all the fuss about now?

Judicial scrutiny has been directed to scenarios where remuneration is variable and made up of elements beyond basic salary. In order to avoid deterring workers from taking holidays on financial grounds, the European Court of Justice has determined that holiday pay should reflect ‘normal remuneration’.

Similarly, the Court states that ‘all elements intrinsically linked to performance should be reflected’. However, this does not necessarily apply to employees with regular basic hours and a basic salary.

What should employers be including in holiday pay?

Shift premiums, allowances and compulsory overtime will almost certainly fall within the description of ‘normal remuneration’, while commission-based pay has also been found to comply in certain cases. However, annual bonuses and sporadic, voluntary overtime may not.

In the most recent cases, the Employment Appeal Tribunal has found that regular required overtime should also be included in holiday pay.

What action is required to avoid holiday pay limbo?

Every employer should conduct an audit of any enhancements to staff pay, while properly taking into consideration when overtime is worked, by whom, and whether it is actually necessary.

Including in calculations those elements which are almost certainly payable – for example, commission, shift premiums and compulsory overtime – for the first four weeks of holiday leave each year – should, in most cases, suffice.

To make up for any previous potential underpayments – and in an effort to avoid staff demands for retrospective holiday wages – some employers may consider making a one-off payment to those affected.

Ideally, though, businesses should try to ensure they are protected from future claims for back pay.

How long will this take to resolve?

It could take years before the full implications of the Holiday Pay Cases judgment by the Employment Appeal Tribunal become clear. In the meantime, employers facing liability should take advice as soon as possible on how best to deal with any future claims.

Amanda Jones is a partner in the Employment Pensions and Benefits team at Maclay Murray & Spens LLP, and a member of the firm’s Food and Drink team.

For more information on holiday pay provisions, or any aspect of employment law, visit or contact Amanda Jones.


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Catering Scotland

Catering Scotland

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