holiday pay Archives | Brindley Twist Tafft & James

Calculating Holiday Pay

Mark Acton — Wed, 17 Feb 2016 09:44:18 +0000

Additional Liabilities for Employers.

Over the past 24 hours the media has been in frenzy over the issue of the calculation of Holiday Pay following the judgement handed down by the Employment Appeals Tribunal yesterday, 4 November 2014.

The Judgement concerns a test case arising from on a series of appeals that have all been heard together in Bear Scotland & Others -v- Fulton (and others).

The Decision

The Tribunal has been asked whether the calculation of Holiday Pay should include overtime and travel payments (other than expenses) as part of “normal work”?

Mr Justice Langstaff has ruled that a weeks pay for the purpose of any annual leave under the working time directive should relate to an average including overtime as well as any travel time payments (but not expenses) which occur in an employee’s employment.

It does not matter that the Overtime may not be guaranteed, or that the Employees may not be compelled to do it.

Practical Effect

What does this mean?

In practice it will not affect salaried employees who do not benefit from additional overtime payments as they receive a flat rate in any event.

Those that will be affected are employees who are provided with additional pay for overtime they complete. Those employees will now be entitled to have overtime payments (including any pay enhancements) used as part of the calculation of wages which they should receive during their periods of holiday. Under the Employment Rights Act 1996 (‘the Act’) a weeks’ pay is calculated by reference to section 221 and which provides that it should be based upon an average of the 12 prior weeks.

Under the Working Time Regulations 1998 (‘the Regulations’) this means that any person who has taken holiday and been paid without any overtime being accounted for in the last 3 months may have the basis of a claim available to them for unlawful deductions from wages.

A question has been asked as to how far this can go back. Certain elements of the media have stated that it could go back to the date upon which the Regulations and the Act came into force, i.e. as far back as 1996 or 1998. However this is grossly exaggerated and highly unlikely to occur as:

a) Limitation in contractual claims is only 6 years. Therefore to get claims beyond that period is unlikely.
b) Any claim which is presented before the Employment Tribunal must show that it is a continuous chain of events and therefore the last underpayment must be within the last 3 months and any prior underpayment must always be within 3 months of the last underpayment: if that does not occur then the chain is broken. It is highly unlikely that such a chain would be able to stem back in excess of several years without being broken.

A further problem arises in presenting such claims on the basis that the Tribunal has concluded that the inclusion of overtime in calculating Holiday Pay only applies to the holiday laid down by the European Legislation and found in Regulation 13. The European law only provides for 20 days per annum annual leave. It then follows that this ruling does not apply to Regulation 13A where the domestic legislation for the UK grants additional holidays. In the UK employees are entitled to 28 days holiday per annum; therefore the remaining 8 days can be paid at the flat basic rate. The Judgement rather unhelpfully did not indicate how this should be spilt retrospectively. Nevertheless it remains clear that this will impact upon the limitation periods and how they are run.

The Future

What is clear is that if upheld on appeal this case has the potential to cost industry a significant amount of money in damages to underpaid employees. It is easy to see how this has the potential to create significant problems for industry and the economy as a whole.

The government has already intervened in these proceedings and was represented at the hearing; clearly this is a significantly important case. The advantage is that normal commercial practices are unlikely to apply and even if the other cases settle the government may in fact pursue a series of appeals in which to obtain a satisfactory outcome for industry in this matter. It is notable that the Vince Cable has already indicated his, and the government’s, opposition to the judgement and that it intends to fight on.

It also should not be forgotten that Mr Justice Longstaff in his decision has already granted leave to appeal the decision. It follows that an appeal is almost certain, and this judgement will not be the end of the matter.

As such a knee jerk reaction to the judgement should be avoided at this time.

Practical Steps

Clearly any cases on this are unlikely to be moved forwards any time soon. It is foreseeable that whilst claims may be issued they will be then stayed pending the outcome of the appeals in this case. It is possible that upon appeal the decisions may be overturned and the status quo preserved.

In the event that there are concerns regarding this decision in order to limit liability going forwards employers may consider:

Taking on Salaried staff without payment for additional overtime (although care must always be taken to ensure that they do not fall foul of the Minimum Wage) , or
Cutting overtime but instead:
Taking on additional employees, or:
balancing fluctuating workloads with the use of agency or temporary staff, or shift working
varying contracts of employment to include rolled up holiday pay as part of the overtime rate payable.
seeking to ensure that any holiday left in this year is stated to be the additional holiday under Regulation 13A and thereafter seeking to try to provide at least a 3 month break between holiday provided under Regulation 13 with a view to breaking the chain of events and thus minimising claims within the limitation period.

This article is not a substitute for legal advice and in the event that you are concerned about the implications of the case discussed above, we would invite you to contact us to discuss its impact upon you and your business.

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Employment Law Bulletin – Spring 2015

Mark Acton — Sun, 15 Mar 2015 09:20:45 +0000

Holiday Pay: Recent Developments.

In recent years there have been a series of developments in the calculation of Holiday Pay. Much of the confusion arises from the wording of the Working Time Regulations (‘WTR’), and the reference to any payments during periods of annual leave being calculated by reference to “normal remuneration“.

Clearly holiday pay includes an employee’s basic salary during the period of absence. However, this “normal remuneration” has been extended to also include:

a) Guaranteed Overtime. By its definition it is something that the Employee could expect, and therefore it would reasonably form part of normal remuneration. As such it should be accounted for in any holiday pay calculation.

b) In the case which is now known as Bear Scotland Ltd v Fulton, the Tribunals were required to consider whether non-guaranteed overtime had to be considered when calculating holiday pay. Its conclusion was that non-guaranteed overtime did in fact also need to be included in such calculations. The Tribunal tried to limit the potential impact of this finding upon businesses by concluding that there had to be a continuous chain of events and where there was any more than a 3 month gap where annual leave was taken then the chain will be broken and any breach before that break would be out of time. In direct response, and to prevent claims which could otherwise arguably go back 6 years, the Government have introduced the Deduction from wages (limitation) regulations 2014, which limit any claims from 01 July 2015 so that they can be brought to a maximum of 2 years from the date of the presentation of the complaint before the Employment Tribunal. This case also has wider implications in that it is likely that shift/job premiums, and bonuses etc. should now also form part of the Holiday pay.

c) In addition to Overtime (whether or not it is guaranteed) and salary payments, employers should also include in the calculation of holiday pay any commission payments that would normally be earned. The authority for this comes from Lock -v- British Gas. This was referred to the European Court of Justice (‘ECJ’)(and a decision of the Tribunal has in fact been given only this week). In this case the employee’s commission was, whilst fluctuating, making up around 60% of the employee’s pay. When the issue arose as to whether this should also be paid during periods of annual leave the ECJ and the Tribunal held that it should. Again in light of the fluctuating sums the ECJ felt that there should be a “representative reference period for averaging” and which would largely depend on the job carried out by the employee and the industry in which they worked.

d) Holiday pay should also be include such sums that an employee would normally receive whilst they are working. For example In Williams -v- British Airways it was held that pilots additional £10 per hour paid per “Flying Time” was payable with holiday pay. However, payments provided to cover occasional or additional costs, such as their time away from base payments of £2.73 per hour, were not to be used in holiday pay calculations.

These matters can be further complicated by the fact that the above points all turn on the interpretation of the WTR, which comes from European Law. Under the WTR only 4 weeks holiday is provided. However, in the UK the remaining 1.6 weeks holiday arises from domestic law. As such there remains an argument that the above calculations are only relevant when applied to the basic 4 weeks and that the remaining time could be subject to a different set of rules. In practice it is most sensible, and will avoid additional costs and complications of working out holiday entitlement, to apply the same calculations to all 5.6 weeks of the annual leave.

Disciplinary Investigations: How Much Is Actually Required?

Employers often struggle to understand what they are required to do when carrying out a disciplinary investigation”

It is clear from the ACAS Code of Practice on Disciplinary and Grievance Procedures 2015 that in order for any disciplinary to be fair the Employer must have carried out any “necessary investigations … to establish the facts of the case”. Further information can be found in the ACAS guidance notes which go on to confirm that nature and extent of the investigations will depend on the seriousness of the matter at hand and the more serious that it is then the more thorough the investigation should be.

It is clear that any investigation should be an attempt to gather evidence to establish whether or not there have been any circumstances which may amount to misconduct. In some instances an investigation meeting will be needed, however, it is not always the case. In some instances the investigatory meeting will be required in order to establish exactly what happened, for example where the complaint appears that it may have a plausible explanation.

From the case of Burchell -v- British Home Stores, it has been clearly set out that there is no minimum level of investigation that is required, only that in making any decision the employer must have a genuine and reasonable belief in the employee’s guilt and which was reached after the employer had carried out “as much investigation as was reasonable in the circumstances“. It follows then that the depth of the investigation is always, like any disciplinary decision, subject to the “range of reasonable responses” test before an Employment Tribunal; the Tribunal cannot impose its own views as to what it believes should have been done.

A recent case of Shrestha v Genesis Housing Association Ltd has confirmed the position and provided further guidance for Employers. In this case it was held that the Employer does not have to follow and exhaust all lines of enquiry. To the contrary provided that it had looked at all reasonable lines then this was sufficient. In this case the employee was alleged to have over-claimed mileage allowance. The employer compared his journeys to his previous claims and to the AA and RAC route planners; all showed shorter routes. The employee sought to say that there were reasons for each and every claim being in excess, and that the employers should have investigated each and every journey fully and in turn. The Tribunal found that there was no need to do so and that the investigation was fair.

In order to establish what a fair investigation could entail it is important for the Employer to consider the complaint and then take such steps as to establish the facts as necessary. An employer should be aware that this is not a criminal investigation, and there is no need to prove that the employee did commit the act of misconduct. The employer only has to show that following a reasonable investigation, it has a reasonable belief that they have, based on the balance of probabilities.

National Minimum Wage to Rise.

With effect from 01 October 2015, the Government has announced the National Minimum Wage is to rise again. The New rates will be:

· The standard rate (those aged over 21) will be £6.70 an hour.

· The apprenticeship rate will be increased to £3.30 an hour from £2.80 an hour.

· The young workers (16-17 year olds) rate will be increased £3.87 an hour.

· The youth development (18-20 year olds) rate will be increased to £5.30 an hour.

This bulletin contains general information as to recent changes in UK Employment Law. It is not a substitution for specific legal advice.

In the event that any of the matters set out in this issue affect you or your business, or if you would like further advice on membership of our Yearbook Scheme, or on Employment Law generally, please do not hesitate to contact either Samantha Wright or John Chadaway on 024 7653 1532

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