Holidays are nearly over – but not the holiday pay nightmare!.

Whilst the end of the summer and the main vacation period may be upon us, the legal issues arising from the Working Time Directive (“WTD”) relating to holidays is certainly not.

The WTD, the principles of which are enacted in the UK as the Working Time Regulations and related legislation, enshrines holiday as a fundamental right which, as we now know from case law, employers are expected to encourage employees to take.

Following on from a judgment in which the European Court of Justice (CJEU) found that British Airways crew’s paid holiday should be based not just on basic salary but also include a flying allowance, the CJEU has further decided that holiday pay should also be based on an employee’s commission as well as basic salary, as it was important that the employees should receive their normal remuneration for their period of rest.  The CJEU saw an intrinsic link between the commission received in that case and the performance of the task the employee was required to carry out under his contract of employment.

There are presently several cases awaiting judgment on the issue of overtime payments and their relationship to holiday pay.  If the Court follows the line of thinking in the previous judgments on the calculation of holiday pay, contractual overtime will also need to be incorporated into holiday pay.  We will hopefully know for certain shortly. Whether or not non-contractual overtime which is optional for the employee will be seen by the court as intrinsically linked to the performance of the employment contract is not as certain but seems likely.

So how should you calculate holiday pay?  You should carefully consider calculating holiday pay on the basis of “normal pay” received by an employee (rather than basic pay), inclusive of average commission, overtime and allowances.  Alternatively, at least put aside a reserve to pay for this uplift on basic pay depending in the Court’s judgments.  You’ll also need to consider the potential for back claims for the balance of unpaid holiday pay relating to commission, allowances and overtime.  However, advice should be taken in advance as whichever option you take may have potential adverse financial consequences.

Hopefully we will have all the answers to the legal issues before next summer’s holiday season begins!

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