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Holiday Pay Causes Woes for Hospitality Sector

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Holiday Pay Causes Woes for Hospitality Sector

August 03
09:36 2017

Claire MacleanWith the number of hours worked by staff often varying dramatically depending on the season, it has never been straightforward for managers and business owners in the hospitality and catering sector to calculate holiday pay. However, a series of court cases have added further uncertainty and complexity in recent months. 

Claire Maclean discusses how best to offer employees the correct amount of paid leave and in doing so stay within the law.


How should holiday pay be calculated?

In sectors such as hospitality where overtime is often required during busy periods, it can be difficult to know what should be included when calculating holiday pay entitlement.

The test recently laid down and applied by the European courts is that any payment that is ‘intrinsically linked to the performance of the tasks under the contract’ should be included in holiday pay. Applying that test in the case of Lock-vs-British Gas confirmed that Mr Lock’s commission payments should be included in the calculation of his holiday pay.

Why is this tricky?

The decision in Lock created uncertainty for employers as to what other payments, apart from commission, ought to be included within holiday pay. Tens of thousands of claims were lodged with the Employment Tribunal pending further clarification of the law, including an appeal in the case of Bear (Scotland).

The Employment Appeal Tribunal (EAT) applied the Lock guidance in the Bear (Scotland) case and found that non-guaranteed overtime, which employees are obliged to perform if requested, should be included in payments for holiday pay. The jury is still out on the issue of voluntary overtime but the current direction of travel indicated by a number of Employment Tribunal decisions – all based on their own facts and circumstances – suggests that payments for regular voluntary overtime may well be treated in the same way.

What does this mean for employers?

Any payment made where there is an intrinsic link between the work carried out and the individual’s role should be included in the calculation of holiday pay. The next step is for employers to consider whether there are any other forms of variable pay which will need to be factored into holiday payments and satisfy the test set down by the European courts. This needs to be assessed on the individual facts and circumstances of each case.

However, these principles only apply to the minimum four weeks set down in the Working Time Directive and not the additional 1.6 weeks statutory leave in the UK Working Time Regulations or any contractual leave entitlement in excess of the statutory minimum.

How far can claims be backdated if a mistake has been made?

A two-year limit on backdated claims for holiday pay was introduced in 2015, but the Bear (Scotland) case showed that an employer is able to argue that claims should cover a shorter time span if there has been a period in excess of three months between the alleged underpayments of holiday pay.

Will Brexit change all of this?

The flurry of holiday pay cases all started with a decision by the European Court of Justice back in 2014, and holiday pay is one of a number of areas of the Working Time Regulations in which employers would welcome post-Brexit flexibility. The Government, for example, might look in due course to limit holiday pay to basic pay only. However, with no specific timescales for such a move, we are in the meantime left with the existing provisions and the effect of the recent case law.

Claire Maclean is a senior solicitor in the employment, pensions and immigration team at Maclay Murray & Spens.


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Catering Scotland

Catering Scotland

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