In 2014 and 2015, the issue of holiday pay was very much in the news, and many employers were concerned that they might face substantial claims related to historical underpaid holiday. The issue has since dropped out of the headlines; but this is still a live issue, and still has not been resolved with as much clarity as one might wish.
This long-running saga started with two cases before the European Court of Justice (ECJ) posing the question of whether holiday pay could be limited to basic salary only, or whether it should include other payments; specifically supplements including “on-call" payments paid to a pilot, and commission paid to a salesman. The ECJ concluded that these payments should be included in holiday pay calculations. The overarching rationale was that an employee should not miss out financially by taking holiday, as this might discourage them from taking it and therefore damage their health and well-being.
The Working Time Regulations that deal with this issue are derived from European law and these cases set in motion a flurry of activity in the UK Employment Tribunals. Several conjoined cases on the issue of overtime and holiday pay were sent to the Employment Appeals Tribunal. Its decision hit the headlines in 2014, finding that certain types of overtime and travel allowances should be included in holiday pay. But there were more unanswered questions; what about other types of supplementary payments? And how should holiday pay be calculated where earnings fluctuate from month to month?
The original European case on commission payments has since been working its way through the UK system, and recently the Court of Appeal gave its judgment on the case confirming that commission should be included in holiday pay so that point at least seems now to be fairly settled law. But the Court specifically refused to make wider findings on other types of payment, and on exactly how the calculation should work.
The case is likely to be appealed to the Supreme Court, which may feel more inclined to give answers to these questions and provide employers with some guidance on how to tackle this thorny issue.
Any employers hoping that Brexit may remove the problem are likely to be disappointed. Although the issue stems from a European Directive and ECJ decisions, there is no indication that the government has any appetite to amend the UK legislation. On the contrary the Government has made various announcements to the effect that workers’ rights will not be changed by Brexit.