Are you struggling how to know how to calculate holiday pay at the moment? Do you add in commissions or overtime or not? If you need some reasonably definitive guidance on these issues, perhaps I could steer you firmly away from the very recent Acas publication on the point, which with the best will in the world promises little help and then under-delivers.
“There is no definitive case law” it says in a number of places, but since there may not be any such case law for months or years (especially now that Lock has been appealed), employers may need to take views on these points well before the law provides any real assistance.
In relation to commission, the Guidance says that this “must” be factored into holiday payments. It bases that view on the ECJ’s ruling in Lock – v – British Gas last year. So far so clear, but there are two problems. First, that is not what the ECJ said – it said that you had to take account of commissions which would be lost by the taking of holidays, as for Mr Lock and his daily or weekly commission earnings. It did not say that you had to add something for commissions even if the employee’s holiday did not cause him to lose any. For commissions earned irregularly or over long periods, therefore, the Acas Guidance is of uncertain legal merit.
The second issue is, as the Guidance admits rather weakly, that there is no definitive legal answer on how commissions should be into account or how/if such claims can be backdated. Even though it was written before British Gas’s appeal in Lock, therefore, there is no real answer here for the desperate employer on this score (but see below).
On the overtime front, “workers should have their normal non-guaranteed overtime taken into account when they are being paid annual leave”. Which begs two questions integral to the Guidance being of any actual help – what is “normal”, and what is meant by “taken into account”? The latter is not really answered at all, and Acas puts a gloss on the former which may not be wholly warranted. These principles would apply, it says, where non-guaranteed overtime is carried out “on a regular or consistent basis” and maybe not where “this overtime is only used on genuinely one-off occasions”. Once each month-end would surely be both regular and consistent (certainly it is not a “genuine one-off”), but such an arrangement could well leave the employee unable to show any loss of overtime earnings for holidays taken in another part of the month. I would suggest that this overtime could be ignored for holiday pay calculation purposes.
The Guidance divides overtime into 3 categories. Non-guaranteed, as dealt with above, means that the employer doesn’t promise it but if it is provided, the employee has to do it. Guaranteed overtime is obligatory for both parties and should sensibly be built into holiday pay already, since it is clearly akin to salary. Voluntary overtime is an odd beast – when work is provided by the employer but the employee is under no obligation to do it. The Guidance says that “there is currently no definitive case law to suggest that voluntary overtime needs to be taken into account when calculating holiday pay” (nor actually that it doesn’t, but never mind!). The prospect of non-guaranteed and voluntary overtime being treated differently for this purpose is (administratively, at least) an unattractive one. It remains to be seen how many employers would choose to take the point or to litigate over whether a particular piece of overtime was worked out of contractual obligation or a wish to earn a little more that month. We suspect only a few.
Where the Guidance is helpful is its implicit acknowledgement that the flat 12-week-prior averaging process mooted by some commentators after the Lock and Bear Scotland decisions is sometimes too blunt an instrument to assess the right level of uplift holiday pay. It is clearly possible to look at the specific circumstances of how overtime or commission is paid in particular organisations and to particular individuals if the employer wishes to do so. See our earlier post on the point http://www.employmentlawworldview.com/holiday-pay-in-the-uk-finding-the-key-to-lock/.
Perhaps it is little wonder in light of its lack of substance that the Guidance encourages “employers, workers and trade unions…to discuss any concerns arising from [Bear Scotland] with a view to seeking agreement on any measures or policy changes they feel may be necessary”. In cases like Lock or Bear Scotland where commissions/overtime earnings are reasonably regular and reasonably consistent, proving loss during holiday absence is relatively simple. In those circumstances, seeking agreement with staff or their representatives may well be worth a thought. However, where serious issues of principle remain in dispute, in particular question marks over the employee’s ability to connect taking a particular period of holiday with any resulting loss, the Acas Guidance does suggest (though I suspect accidently) that it may be worth holding the line.