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Holiday Pay Update

Posted on 10th August 2017

We have all come across the vexing question of how much employees should be paid when they go on holiday. Edwin Coe LLP has explored the topic of holiday pay and what impact this can have on your business. Edwin Coe is a leading Law Firm based in London who work closely with The Maine Group, including co-hosting regular Employment Law Forums. 

"As a result of a slew of cases on this subject, we know that they should be paid their ‘normal’ remuneration but what is ‘normal’?  We had a clear steer from the European Court that the value of any compulsory overtime usually undertaken by an employee on a regular basis should be included when calculating holiday pay, but the case law left open the question of whether or not that applied to voluntary overtime also.

In 2015, there was a Northern Ireland Court of Appeal decision which confirmed that the loss of voluntary overtime should also be included when calculating holiday pay but that decision was not binding in England and Wales. However, we now have an Employment Appeal Tribunal (EAT) decision which is binding in England and Wales which confirms that the loss of any voluntary overtime should also be taken into account when calculating holiday pay.

The case of Dudley Metropolitan Borough Council v. Mr G. Willetts & Ors determined the issue. In short, the EAT decided that if an employee goes on holiday, when calculating ‘normal’ weekly remuneration, no realistic distinction can be made between the work that they are contractually obliged to carry out (such as compulsory overtime) and work that is performed voluntarily by the employee for which they are paid on a regular basis such that it can be said to be part of their ‘normal’ remuneration.

This decision on the face of it, only applies to the 4 weeks (inclusive of bank holiday) ‘Euro’ holiday that an employee is entitled to under the European Working Time Directive and not to the additional 1.8 weeks leave granted by the UK Government (making a total entitlement of 5.6 weeks holiday a year inclusive of bank holidays). In addition, it is unlikely to result in a flurry of claims for back-dated underpayment of holiday because if there has been a break of more than 3 months between leave dates, that will break any series of ‘unlawful deductions’ which limits how far employees can go back.

Nonetheless, this case has important implications for the way in which employers calculate holiday pay going forward."

If have any questions concerning this judgment or any other issues in relation to the calculation of holiday pay, please contact the Employment team at Edwin Coe LLP or contact us here.