What should an employee be paid when they are on holiday?

Alan Price – CEO at BrightHR

January 19 2016

The Working Time Regulations govern a worker’s right to a minimum period of annual leave, and the right to payment during this time off. For every week an employee is on annual leave, they should be paid, according to the Regulations, “a week’s pay”. This will mean different things for different workers and depends on how the contractual working hours are structured. A week’s pay for a worker whose pay does not change from week to week is simply paid, for a week’s annual leave, what he would normally earn in a week. However, pay for some workers is not static and they can earn different amounts each week. Where this is the case, a week’s pay must be calculated as an average of the pay earned in the 12 week period before the annual leave takes place. If no money was earned in any of these 12 weeks because no work was done, then the employer must look further back by the amount of weeks in which no wages were earned so that the calculation includes 12 paid weeks. The topic of additional payments and holiday pay has been at the centre of many Employment Tribunal cases in recent years. One case, Bear Scotland v Fulton, decided that pay earned for “normal non-guaranteed overtime” should be factored into the calculation for holiday pay, meaning that a 12 week average calculation may need to be used in more instances. This is overtime which is not contractually guaranteed by the employer but when it is offered, the employees are contractually obliged to do it. A separate case, Lock v British Gas Trading Ltd, focussed on commission payments. Again, the Court decided that holiday pay should include an element to reflect commission earned. However, this ruling has been appealed; the decision is expected shortly and so the current situation in this regard is unclear. Clients should contact the Advice Service if their employees perform non-guaranteed overtime or earn commission payments in order to obtain specific advice on their particular circumstances before increasing holiday pay.

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