Holiday Pay – How Much Does It Cost?

In this article, Patricia Rooney, Director in Tughans’ Employment Department considers the implication of recent cases about holiday pay.

There has been much case law about payments to employees whilst on holiday. The decision of the Court of Justice of the European Union in Williams v British Airways held that airline pilots were entitled to holiday pay that comprised remuneration that was intrinsically linked to the performance of their work, plus payments that related to their professional qualifications and personal status. This included payments relating to seniority, service etc. Williams however dealt primarily with the EU Aviation Directive rather than pay due under the EU Working Time Directive, reflected in Northern Ireland by the Working Time Regulations (NI) 1998 (WTR).

The European Court went on to consider further issues about holiday pay in the later case of Lock v British Gas Trading. That case did concern the Working Time Directive and held that holiday pay should not be basic salary alone but ought to include sales based commission where that was regularly paid to workers.

The issue of holiday pay came into sharp focus again following the case in Bear Scotland. It is worthy to note that this is a decision of the Employment Appeal Tribunal in England whose decisions are not binding in Northern Ireland. Tribunals here however do consider them of persuasive value and the Industrial Tribunal has subsequently issued a decision endorsing the reasoning in the case.

Following the decisions in the above cases, the position in relation to pay for holiday entitlement under the EU Directive is that holiday pay must include the following:-

  • Payments which are intrinsically linked to the performance of specific tasks required under the employment contract e.g. a performance related bonus, shift premium.
  • Payment relating to the employee’s professional or personal status e.g. seniority/service.
  • Commission.
  • Overtime payments.
    • Which relate to guaranteed overtime.
    • Which relate to non-guaranteed overtime.
  • Allowances.
  • Standby/Call out payments.

Holiday pay does not have to include an element of:-

  • Voluntary overtime.

It is important to remember that this case law deals with holidays specified by the Directive i.e. 20 days paid annual holiday rather than the 28 days prescribed under the WTR, and any additional contractual entitlement. Consequently, holiday pay for 20 days should be calculated taking the above factors into account.

Bearing this in mind, an employer could pay holiday pay at two different rates – one relating to the 4 week entitlement under the Directive and the other for the remaining 1.6 weeks under the WTR, plus any additional contractual entitlement.

Following the decision in Bear Scotland that holiday pay should include payments for guaranteed and non-guaranteed overtime, there has been much discussion as to the ability of employees to issue claims against their employers for any shortfall in backdated holiday pay.

The EAT stated that claims could not be made for holiday pay where more than 3 months had elapsed between the alleged deductions in holiday pay. The matter has been further developed in England and Wales with the publication of draft legislation which states that backdated holiday claims will be limited to 2 years, for any claims issued after July 2015. The regulations will not apply in Northern Ireland.

It is recommended that in examining contractual pay arrangements in light of the above cases, employers might – in an attempt to increase the time period between payments of holiday pay under the Directive and thereby reduce the risk of claims for any shortfall – specify which holidays an employee will avail of first in any holiday year i.e. the entitlement under the Directive or additional WTR and contractual holidays.

Employers may also wish to clarify which elements of pay fall within remuneration for the calculation of holiday pay and identify exactly to which holidays this pay relates. It may be however, that after analysis of the costs that would be incurred in carrying out two entirely separate calculations firstly, for the 4 weeks due under the Directive and secondly for any remaining annual entitlement, that employers decide that holiday pay will be paid on the same basis for all types of holiday entitlement.

For further information please contact Patricia at patricia.rooney@tughans.com or 028 90553300.

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While great care has been taken in the preparation of the content of this article, it does not purport to be a comprehensive statement of the relevant law and full professional advice should be taken before any action is taken in reliance on any item covered.