The Supreme Court has today ruled that statutory holiday pay must include all elements of remuneration, not just basic pay.  This will include any supplements, shift-premiums, commission, bonuses etc.  The only sums which can be excluded are those which are genuinely intended to cover expenses.

Although the case was brought by pilots, who relied upon the Civil Aviation (Working Time) Regulations 2004, it has relevance to workers in other sectors whose holiday entitlements are governed by the Working Time Regulations 1998.  This is because the Supreme Court were merely applying principles laid down by the ECJ and considering whether the regulations could be interpreted to give effect to the ECJ’s decision.  The ECJ had earlier held that pay during annual leave under the Aviation Directive, in line with a workers' entitlement under the Working Time Directive, had to include all elements of remuneration; only payments intended purely to cover ancillary costs or expenses could be excluded.

British Airways tried to persuade the Court that it could not interpret the regulations to give effect to the ECJ’s decision. The Supreme Court rejected that proposition and concluded that the regulations could be interpreted in such a way.  The underlying principle is that a worker should receive, as holiday pay, similar sums to that which they would receive when working.  If necessary, this must be achieved by performing a calculation over a representative period. 

It is unclear whether the principle will extend beyond the four weeks’ minimum holiday provided for in the Working Time Directive, but two recent ECJ cases suggest that it might not.  In practical terms, this may not matter, because the complexity of operating two rates of holiday pay will put most employers off distinguishing between the different types of leave.

Employers should review their contracts and holiday policies to make sure that they are paying workers for their holidays at a rate which reflects all elements of their pay, such as shift-premiums, unsociable hours premiums, contractual overtime, commission, bonuses etc., but excluding genuine expenses e.g. mileage allowances, sustenance payments etc.