Whilst at my weekly Dundee Connections networking meeting this morning, Alistair Booth, a specialist in HR and owner of The HR Booth, raised an interesting topic. He discussed the subject of holiday pay in the UK and the fact that changes are about to happen, which will have implications for employers. Here’s a summary of what he explained.

Receiving Commission

In a recent case known as Lock v. British Gas Trading the European Court has ruled that sales commission should be taken into account when calculating holiday pay. This ruling won’t just apply to sales reps, it will apply to any employee who is earning regular commission or bonus payments as part of their contract.

Facts of the Case

Mr. Lock, a sales consultant, brought a tribunal against his employer British Gas for unpaid holiday. Mr Lock was earning a basic salary plus commission which was paid in arrears, for sales made in preceding periods. His commission equated to around 60% of his total earnings. The pay he received during his holiday included commission for the previous months, but he was obviously unable to make any sales during the time he was on vacation.

Outcome

At first glance the outcome of this case seems as though it would be simple. Why would an employer pay an employee commission for fictional sales when they are away on holiday not working or generating business?

However. The court has ruled that not receiving commission whilst on annual leave could deter individuals from taking annual leave in the first place. The case and this verdict has been referred back to the UK Employment Tribunal for consideration. It is now for the UK Employment Tribunal to decide how best to calculate this rate of commission – perhaps it will be based on average earnings over preceding periods of time? We'll soon find out.

Receiving Overtime

Case law is also developing around the subject of overtime. Whether or not overtime payments should be calculated in statutory minimum holiday pay, is also in question. One case, Neal v. Freightliner Ltd. has already ruled that in the particular set of circumstances, overtime pay should have been included. A similar case, Fulton & Baxter v. Bear Scotland Ltd. is expected reach a decision at the end of this month (July). Depending on the outcome of this case, it is well possible that the rules concerning overtime pay will be set to change.

The Implications

According to Alistair Booth, HR Consultant and owner of The HR Booth, here are the implications.

“Imagine Lynne is an employee for company X. She is contracted to work 37.5 hours per week but works an average of 42 hours per week and is paid for this additional time. Currently, when Lynne is on holiday, she is paid for the 37.5 hours to which she is contracted. The developing case law indicates that in future Lynne should be paid her average earnings inclusive of overtime, when on holiday. It is possible that average earnings will be calculated on the basis of the 12 weeks worked prior to leave being taken, but this calculation could extend to a 17 week period. At this stage, the outcome is uncertain”.

What Can Be Done

According to Alistair, the sensible approach is to audit the current situation, consider whether overtime payments might be a factor and calculate what, if any, the costs might be.

For an employee to lodge a claim they would have to do so within 3 months of receiving their last underpayment. What this means is that ex-employees will only be able to claim if they do so within 3 months of leaving employment. However, existing employees will be able to make a claim and there is a real possibility that they will be able to make claims dating back to as early as 1998 or their first date of employment. Claims will only be made under EU statutory rules for 4 weeks basic holiday entitlement. Claimants will not be able to able to request overtime payment for the entire 5.6 weeks statutory annual leave which is given in the UK.

Avoiding Claims

Legal proceedings concerning the HR matters outlined above are likely to attract media attention and interest from the public, and rightly so. If you are an employer and are concerned about how these developments could impact upon your business, there are strategies which can be implemented to reduce the likelihood of receiving an abundance of financially crippling claims. For further advice on how these changes may or may not impact upon your business, please arrange a one-to-one meeting with Alistair Booth from The HR Booth today on 0844 8427730.