Louise Mulgrew
3 minutes length
Posted: 24th November 2015

Where do you stand on Holiday Pay?

holiday pay

Holiday pay legislation has been subject of court rulings recently, and IRIS are prepared with a flexible solution.

Click here to view the IRIS Holiday Pay Module Product Sheet

There are three acts that have affected the way that holiday pay legislation is ruled:

Employment Rights Act

This is the act that states that employees should be provided with a written statement surrounding the terms and conditions of their employment. There is no guidance surrounding the calculation of holiday pay, other than that it should be done consistently. Employees cannot have unlawful deduction of wages; for example the employer taking money from an employee’s wage other than the statutory requirements.

European Working Time Directive

This is the act that states that all employees throughout Europe are entitled to a minimum of four weeks paid annual leave.

UK Working Time Regulations

In the UK, employees are entitled to a minimum of 5.6 weeks paid annual leave, taking into account bank holidays – this accounts for the additional 1.6 weeks of paid leave.

The cases that have affected the legislation are:

Fulton v Bear Scotland

Fulton argued in this case against their employer that not including compulsory overtime in the calculation of their holiday pay entitlement was an unlawful deduction of wages because overtime was part of their “normal” remuneration package. In November 2014, the European Appeal Tribunal (EAT) ruled in favour of Fulton and stipulated that holiday pay should include compulsory overtime in the calculation. This ruling doesn’t affect voluntary overtime.

Lock v British Gas

The Lock v British Gas ruling stipulated that commission should be taken into account when calculating holiday pay. Lock argued that there was a barrier to taking statutory holiday pay due to a reduced by when on a period of annual leave. The European Court of Justic (ECJ) found in Locks favour.

But, why do these rulings matter?

Because of the courts that these rulings were made in (European Appeal Tribunal and The European Court of Justice), the ruling sets a legal precedent over similar cases in courts under those two. This means that, while it isn’t legislation, judges and arbitrators are obliged to follow the rulings made in courts higher up the chain.

So what should you do?

At present, UK companies have four options.

1) Do nothing and wait for further clarification

2) Pay annual leave based on average earnings over a 12 week period

3) Offer a two-tiered holiday pay system basing the first 20 days on average weekly earnings and the remaining 1.6 weeks holiday on static earnings

4) Pay additional holiday pay based on a percentage of all non-guaranteed overtime

There are a number of things that need to be considered if you decide to act on implementing a solution.

1) What constitutes a day’s or an hour’s holiday pay?

2) How is holiday calculated for monthly paid individuals?

3) If a statutory payment is included in a pay period, should the whole pay period be excluded from the calculation?

How are IRIS helping?

The IRIS Holiday Pay Module provides a flexible solution, allowing the user to define how the payment should be calculated. Individual pay elements can be selected, future proofing the solution. This gives the user a flexible, fully controlled solution that will be able to work and grow with your business.

The IRIS Holiday Pay Module, as with all IRIS Software, is updated in line with any changes to legislation which will enable your business to remain compliant.

To find out more about the IRIS Holiday Pay Module, get in touch with us on 0344 815 5676

To find out more about the IRIS Holiday Pay Module, you can view the product sheet by clicking here

Need more information on how to calculate holiday pay? Visit our Holiday Pay Insight Page.