The Working Time Directive gives employees the right to holiday pay but provides little clarity on how this pay should be calculated.
This uncertainty has resulted in a number of recent high profile cases on holiday pay, including Lock v British Gas.
Lock v British Gas
Last year the tribunal in Lock v British Gas ruled that commission payments should be included in holiday pay calculations.
In reaching this decision, the tribunal relied on the earlier case of Bear Scotland v Fulton, in which it was held that non-guaranteed overtime should be included in holiday pay.
In order to reach that conclusion the EAT had said that UK law should be read in a way that allowed it to fit with EU jurisprudence. The tribunal applied the same approach to commission payments in the Lock case.
British Gas appealed this decision to the Employment Appeal tribunal. The energy company argued that Bear Scotland was wrongly decided and that in any case, the decision did not apply to commission payments.
In rejecting this argument, the Employment Appeal Tribunal held that the decision in Bear Scotland had been correctly applied by the tribunal in this case and that UK law should be interpreted to mean that commission payments should be included in holiday pay calculations.
British Gas has requested permission to take this case to the Court of Appeal for a definitive ruling on whether commission must be included in holiday pay calculations.
Any appeal is unlikely to be heard until next year, further prolonging the uncertainty surrounding this issue.
How can we help?
There is no one size fits all approach to the holiday pay issue. Your calculations will depend on a number of factors including whether you pay commission; how you structure your overtime and bonus arrangements; whether workers have normal working hours or not; and whether pay varies with the amount of work done or when it is done (e.g. some shift workers).
Get in touch with your usual Brodies' contact if you need advice or assistance, and particularly if you are considering changing the way in which you calculate holiday pay, or settling any actual or potential back pay claims.