The Employment Appeal Tribunal (EAT) has recently made an announcement on holiday pay that potentially affects the way in which holiday pay is calculated by employers.
What was the EAT’s announcement in relation to?
The case relates to the value of holiday pay that employees should be entitled to and, in particular, the earnings on which holiday pay should be based. The EAT considered whether overtime, commission and other allowances should be included in earnings forming the basis on which holiday pay was to be calculated.
Interestingly, the remit of the review was only to consider the 20 days of holiday that was originally enshrined in the Working Time Regulations 1998. The entitlement to paid leave for statutory bank holidays therefore appears unaffected by this decision.
What were the findings from the Tribunal?
The outcomes were almost entirely in the favour of the employees rather then employers in this judgment. The key outcomes were:
- That holiday pay should be based upon “normal remuneration”, rather than “normal hours of work”;
- Accordingly, holiday pay should be based upon all hours worked, including overtime (regardless of whether an overtime premium is paid) and all allowances that relate to time spent by employees;
- An attempt to clarify the scope for retrospective claims. The conclusion appears to be that this is unlikely to stretch beyond a 12 week/three month period, but commentators suggest that this will vary from case to case.
What are the potential implications for my practice?
- You will need to consider whether existing holiday pay calculations take into account of the latest requirements, whatever the wording of the employment contracts;
- Some staff in the veterinary sector work variable hours and, therefore, holiday pay is often already calculated based on average earnings;
- Any staff on zero hour contracts should be unaffected by this ruling;
- Staff employed on a part time basis will also need particular consideration to ensure that holiday pay reflects actual hours worked and paid for, rather than just contractual entitlement.
- In the specific situation of when an employee leaves, it can often be the case that no holiday pay is owing in any case. For example, let's say they leave working at the practice 6 months through your holiday year and they have used 6 months worth of their holiday days entitlement, then there would be no holiday pay owing. If they had taken more or less than their holiday days entitlement in that 6 months, there would therefore normally be a holiday pay settle up due from / to them.
In its summing up, the EAT has already granted leave to appeal all points of the judgment, which is likely to be heard by the Court of Appeal. The Business Secretary, Vince Cable, has also announced that he will be setting up a task force to look at the impact of the judgment.
Despite this uncertainty, I would recommend that as this is a matter of employment law, if you have any queries that you speak with your employment law advisor to assess if you should be making any changes.