Holiday Pay

European Law has encouraged people to take their holiday allocation primarily from a health and safety point of view they can relax recuperate and return refreshed to the workplace. This was recognised in the Working Time Directive which maintained that everyone was entitled to 20 days paid holiday. We gold plated this in the UK and our minimum entitlement is 28 days including statutory holidays. The European regulations however only apply to 1st 20 days. The European courts are adamant that people should not suffer a financial penalty by going on holiday and hence be reluctant to take their full allocation.

There a few thorny questions firstly what is a day’s pay and secondly how and under what circumstances are the various allowances commissions etc. that people accumulate affect the calculation of day’s pay and how at the end of the day can you ensure that someone is not financially disadvantaged by taking their holiday and thus losing their ability to earn commission or bonus. These issues have been the subject of litigation especially over the last 18 months which is still winding its way through the courts. The purpose of this note is to briefly summarise where we are and to indicate a relatively safe way of going forward-nothing in this world is completely safe.

So simple case no overtime bonus commission or any other allowance no problem a day’s pay is weekly pay divided by 5.

For overtime to be considered it has to be compulsory and guaranteed or compulsory and not guaranteed or voluntary regular and frequent or infrequent. Voluntary and irregular overtime does not count.
In addition the following allowances should be taken into account shift premiums, travel or staying away allowances (but not expenses), unsocial hours allowance , on call allowance. On occasions an acting up allowance may also be considered

You will also need to take a view over what period you are going to look back as for organisations with  seasonal variances this could have a major effect normally 12 weeks is sufficient but in some cases you may need to go back 12 months. You should tell your staff how you propose calculating their holiday pay and if appropriate negotiate it with their representatives,. The good news at present is that should anyone want to make a claim for unpaid wages they can normally only go back 12 weeks which in July will become 2 years

So first things audit holiday pay patterns i.e when people  tend to go away and audit all variable pay ,make sure you HR/Payroll systems can cope with the calculations and then decide how you intend approaching this with your staff