Important and/or distinctive aspects of holiday/annual leave legislation in the UK

Several recent court decisions have changed the way annual leave and holiday pay works in the UK.  The changes summarised below apply only to the minimum 4 weeks' statutory annual leave applicable in the UK, and not to the 1.6 weeks' additional leave.

Overtime: Employers must take now non-guaranteed overtime into account when calculating holiday pay. "Non-guaranteed overtime" means payments for overtime which a worker is required to work if an employer offers it, but which an employer is not required to offer.  The courts have not specified whether voluntary overtime (i.e. where employers are not required to offer, and employees are not obliged to accept overtime if offered) should be included in holiday pay calculations. For the additional 1.6 week's leave, only guaranteed overtime must be taken into account.

Individual commission: Commission that is intrinsically linked to work carried out by a worker must now be included in holiday pay calculations. This is because it is a disincentive for employees to take holiday where they would lose out on commission in doing so.

Team commission: This is not resolved but currently team commission does not necessarily have to be included – it will depend on the terms of the commission arrangement.

Taxable allowances: Some taxable allowances should be included in holiday pay calculations as follows:

  • allowances that are similar to bonuses (i.e. compensation for performing certain tasks) should be included; but
  • allowances that are intended to cover ancillary costs only should not be included.

This is however still a grey area.

Bonus: Bonuses are to be treated differently, according to the courts, depending on their nature. Productivity, attendance and performance bonuses may be included in holiday pay calculations, depending on the circumstances. The position is still unclear for annual discretionary and other bonuses; even though they are usually intrinsically linked to performance, it would be difficult for an employee to argue that an annual discretionary bonus is part of their "normal remuneration".

Standby and emergency call-out payments, and "acting up" supplements: These should all be included in holiday pay calculations, because they are intrinsically linked to performance of tasks under employment contracts.

> Table containing jurisdiction by jurisdiction analysis (PDF)