Neill Thomas Wednesday, February 18, 2015
Employment law cases have recently been heard on the calculation of average holiday pay. These cases have changed the way employers calculate holiday pay because whereas previously, holiday pay was simply a matter of paying basic pay, the courts have now ruled that in addition to basic pay, certain overtime payments, commission, allowances and bonuses must be included in the calculation.
Until recently, holiday pay under the Working Time Regulations was calculated on the basis of normal contractual hours and not the overtime which the worker may have worked. This interpretation was confirmed as the correct approach by the Court of Appeal in the case of Bamsey v Albion Engineering and Manufacturing plc  IRLR 457. The position was then confused by a decision of the European Court of Justice: Williams and others v British Airways plc  IRLR 948. This case decided that holiday pay should reflect supplementary payments received including overtime.
The result of this decision is that a large number of Employment Tribunal claims have been brought for unpaid holiday pay based not only on normal contractual hours but overtime (even if this overtime is not guaranteed) and other supplementary payments which may be received in addition to basic pay.
Some of the subsequent claims brought have settled, but in Bear Scotland Ltd v Fulton (which is still ongoing) the Employment Appeal Tribunal held that holiday pay should include overtime, if an employee is required to work it. The position with voluntary overtime is less certain, but if regularly worked, then it might form part of normal pay and feature in holiday pay calculations.
In order to guard against the potentially large numbers of claims for average holiday pay going back several years, the Government is introducing legislation to prevent claims of unlawful deductions going back more than two years. We shall have to see how the legal landscape changes over the coming months, and will update our readers further on this vexed area of the law.