Holiday pay – time to take action?

The much anticipated decision in Lock v British Gas has now been handed down. It confirms that employees’ commission earnings should be included in “normal remuneration” for the purposes of calculating holiday pay. This follows recent case law confirming that holiday pay should account for employees’ paid overtime.

Full time employees are entitled to a statutory minimum of 28 days’ annual leave per annum (including bank holidays or days in lieu of bank holidays), although some employees receive additional contractual holiday. Of the statutory entitlement, 20 days’ holiday in each holiday year is subject to European law, and it is to these 20 days that the new rulings apply giving employees pay in lieu not only of basic salary but also overtime, commissions and in some cases bonuses.

These decisions affect thousands of employees who rely on commission earnings and overtime as part of their income and should result in a change the calculation of their holiday pay going forward.

Employees can also claim against their employers for historic underpayment of their holiday pay if they have not been paid in lieu of overtime and commissions when taking holiday leave in the past. There are certain limits in time to making these “unlawful deductions” claims. If you think you have a claim you have make sure that you issue your claim in the employment tribunal no later than 3 months from the last episode of holiday leave when you were underpaid.

Right now, provided there is no more than a 3-month break between an employee using their 20-day holiday allowance in one holiday year and the next, there is potential for employees to claim historic underpayments going back several years. However, these claims should not be delayed since with effect from 1 July 2015 workers will be limited to claims for historic payments arising up to a maximum of 2 years back from the date on which their claim is filed with the employment tribunal.

So, if you think this change in the law may affect you, now is the time to take action.

The Lock decision provides that employees are entitled not only to have commission earnings accounted for in their holiday pay calculation, but also “any similar payment.” This leaves open the possibility for claims that holiday pay should also incorporate other variable income such as incentive bonuses, shift premiums or standby payments which could have huge financial consequences for workers.

Along with a number of holiday pay cases already working their way through the tribunal system, there is likely to be an appeal of the Lock decision to the Employment Appeal Tribunal, making this an area to watch with interest.