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Higher Holiday Pay Bills For Employers

Employment Law

Recent European Court of Justice decisions could result in Employers having to pay increased rates of holiday pay to their workers.

Under the Employment Rights Act 1996 (‘ERA’) and the Working Time Regulations (‘WTR’), holiday pay is calculated by reference to a worker’s basic pay. Where basic pay fluctuates, the holiday pay is calculated by reference to a worker’s average basic pay.

In the case of Lock v British Gas, Mr Lock brought a claim in respect of a failure by British Gas to include his commission (which accounted for more than 60 percent of his earnings) when calculating his holiday pay. British Gas relied on the ERA 1996 and WTR along with case law which provided that results-based commission does not qualify as pay varying with the amount of work done and therefore the averaging provisions for variable pay do not apply. On this basis they argued commission should not be included when calculating Mr Lock’s basic pay for the purposes of a holiday pay calculation.

The ECJ ruled that this interpretation of the Working Time Regulations is not compatible with the Working Time Directive because that basis of calculation resulted in Mr Lock being deprived of an element of pay which is “intrinsic” to his job.

This follows on from and is consistent with an earlier Supreme Court decision, following a reference to the ECJ, that in the case of British Airways Pilots holiday pay calculations pursuant to the Working Time Directive should include all elements of remuneration which are “intrinsic” to their jobs.

This is an area which is likely to develop significantly as more cases are brought before the Tribunal to test the extent of payments to be considered when calculating basic pay for holiday pay purposes.

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