Employers warned over holiday pay

North Wales based chartered accountants Pritchett & Co Limited are warning employers to ensure they are calculating holiday pay correctly after a number of recent legal challenges.

According to the Working Time Regulations (1998) (WTR 1998), all workers are entitled to 5.6 weeks’ statutory annual leave.

Workers must be paid at the rate of a week’s pay for each week’s leave, however there has in recent times been a grey area over what constitutes a week’s pay and what additional payments should be included.

Employers should consider recent case law which has cleared up this matter. In Neal v Freightliner Ltd, an employment tribunal held that holiday pay should take into consideration overtime work, because the overtime in that case, although voluntary, was intrinsically linked to performing tasks that were required to be carried out under the employment contract.

A recent case referred to the European Court of Justice (ECJ) also clarified whether holiday pay should include commission.

In the case of British Gas v Lock the ECJ held that when calculating a worker’s statutory holiday pay, this will not be limited to basic salary but will include commission if it is part of their remuneration.

Andrew Morris, directorat Pritchett & Co Limited, said: “With the holiday season now underway, employers are reminded to ensure that holiday clauses include commission and overtime payments”.

“Employers who are concerned that employees will increase their hours significantly during a period of notice (thus artificially increasing their remuneration for the purposes of the holiday pay calculation) should ensure that internal policies are in place to legitimately control the amount of overtime an employee can undertake”.

“Failure to correctly award holiday pay could see employers being taken to employment tribunals where they could potentially face financial penalties.”

For more information and guidance on calculating holiday pay please contact us at info@pritchettandco.co.uk or call us on 01492 534250.

The author is a director at Pritchett & Co Limited, Chartered Accountants and Chartered Tax Advisers, members of UK200Group with offices throughout the UK and Associates overseas.