29 April 2015

Updated Holiday Pay Guidance for Employers

Following the landmark judgment on holiday pay last year, which confirmed that an employee’s overtime and other ‘normal’ payments must be considered when working out holiday pay, the Employment Tribunal has now set out how any commission paid should be calculated for holiday pay.

Based on the Employment Tribunal judgments to date, employers should be aware of the following when calculating holiday pay which applies to all full and part time staff:

• An employer must include an employee’s commission, bonus payments and guaranteed and non-guaranteed overtime in their pay when working out holiday pay. Voluntary overtime does not have to be factored into holiday pay

• To calculate the holiday pay of an employee, the employer must use their average weekly pay over the previous 12 weeks prior to the holiday, including any commission earned, bonus payments received and overtime worked

• Employees are only entitled to have commission, bonus payments and overtime factored into their holiday pay for 20 days of holiday. Employers can pay any remaining holiday at the employee’s basic salary rate

• It is up to the employer to decide which 20 days of holiday taken by an employee has the commission, bonus payments and overtime factored in

• Employees can make back-dated claims on previous holiday pay which did not include commission, bonus payments and overtime, provided it is less than three months since the holiday.

The Construction Industry Joint Council (CIJC) has amended the calculation of holiday pay under its Working Rule Agreement to include overtime and bonus payments. It has also allowed 21 days of holiday pay to have overtime and bonus payments factored into it, rather than 20 days, as the Working Rule Agreement provides for 21 days paid holiday each year. This means that, if you are bound by the CIJC, the Working Rule Agreement takes precedence over the Employment Tribunal judgment.

Guidance on calculating holiday pay can found on the ACAS website. Members can receive free advice on holiday pay and other employment issues from Croner by calling 0844 249 9873.