It is common knowledge that employees are entitled to 20 days holiday per year plus bank holidays. But calculating holiday pay has become increasingly complicated. Article by Liz Whitehead, Senior Solicitor, Employment Law at Hart Brown.
The Judges and the courts are at logger heads trying to decide who is correct and which judgment should be followed. The ECJ has made a decision, but that has not resolved all the difficulties. You may think that it does not matter if holiday pay has to be adjusted by a day or two. But up to 6 years underpayments may be recoverable (under the 1980 Limitation Act) or even potentially back to 1998 when the Working Time Regulations were introduced. That amount multiplied by all your employees, plus the potential to add interest to the debt, could cause some financial embarrassment.
Making sure that employees do not suffer financial loss when they are on annual leave does not sound complicated. Pay them their average wage and all should be well. But what if their average wage fluctuates. Does the salary include overtime, commission or bonuses? If so should the total payments be averaged out over 12 months to give an average weekly wage, with holiday pay to be based on that? Or should the average salary be calculated by reference to average pay for the preceding 12 weeks only.
It may be some time before the Courts have resolved the dispute. At some point in the future the EAT will make a decision, but that may not be an end to the dispute. Ideally we will have a higher court decision that can be relied upon as an authoritative precedent. Until then you may want to hedge your bets, and pay an agreed average wage. There is even the possibility that the Government could be responsible for paying the shortfall if they have failed to implement the Working Time Directive appropriately. Finally the requirement to pay the average salary does not apply to Bank Holidays. Then the employee only receives their basic pay.
