If you're thinking that this holiday pay saga has been dragging on for years, you're right. If you're hoping we're now at the end of the road, and everything is clear, prepare to be disappointed.

British Gas v Lock - Supreme Court

The Supreme Court has refused British Gas permission to appeal the Court of Appeal's decision that contractual results-based commission should be included in holiday pay. So that decision will stand.

The case is due to go back to the tribunal to decide some remaining points, including the actual amount (if any) due to Mr Lock.We'll let you know if anything useful comes from this.

What do we include in statutory holiday pay?

Here's how things stands for now:

  • Include guaranteed, compulsory overtime (in respect of all 5.6 weeks).
  • Include non-guaranteed, compulsory overtime if it is regularly worked, but there is still a question mark over irregular overtime.
  • You may need to include some voluntary overtime, standby and call out payments.
  • Include contractual results-based commission as per British Gas v Lock.
  • You may also need to include other types of commission.
  • Whether you need to include bonus payments is likely to depend on the nature of the bonus and terms of the bonus scheme.

This applies in respect of the basic 4 weeks' EU statutory leave, and not the additional 1.6 weeks' UK statutory holiday or any additional contractual holiday (unless otherwise stated).

It applies to workers with 'normal working hours'. Holiday pay calculations are different for workers with 'no normal working hours' - Workbox users can get more information at Holiday Pay.

What reference period do we use to calculate holiday pay?

If the above payments are to be included in holiday pay, you need to know what reference period to apply.But, unfortunately, we still don't have definitive guidance.

One option is to look at average pay for the last 12 weeks, but if that has the capacity to create an unfair result - either for you or the employee - a 12-month period may be more useful. Get in touch if you want to discuss the best approach in your circumstances.

Holiday pay - how far back can employees claim?

Holiday pay claims brought on or after 1 July 2015 are limited to alleged deductions in the two years before the claim.

However, one point is still being litigated: the Employment Appeal Tribunal (EAT) decided that claims must be lodged within three months of the last in a series of deductions, and that a gap of more than three months between underpaid holiday periods would break a series of deductions. This would cut off any claim for underpaid holiday before the gap. We're waiting on another decision from the EAT on this and will keep you posted.

Will Brexit change all of this?

At the point of Brexit, two questions arise:

  • Will tribunals continue to follow UK court decisions that were based on EU law? Holiday pay is a high profile example. Our view is that tribunals will most likely apply previous decisions of a higher UK court unless or until that higher court or Parliament takes a different approach. However, Brexit gives scope for are-litigation of the holiday pay issues.
  • Will the government legislate to limit holiday pay to basic pay? Once we exit the EU, the government will be entitled to do this. Whether it will is a very different matter. Much will no doubt depend on the political landscape at that time.

The saga continues...


Kathleen Morrison

Practice Development Lawyer