Q: I have noticed the recent rulings regarding overtime and commission in holiday pay, but I am a little confused by what it all means. Please could you provide clarification?
A: For years, the payment of holiday pay was a relatively simple issue; when a worker took annual leave, they were paid their basic pay for their contractual hours. However, three recent court judgements have the potential effect of re-shaping the law on how much employees should be paid when they are on annual leave.
The first issue concerns “normal non-guaranteed” overtime. This is overtime which the employer is not contractually obliged to offer, but when offered the worker is obliged to do it. Further, this must happen with such regularity that it can be considered to be “normal”.
The Employment Appeal Tribunal decided that where this occurs, holiday pay should be determined by calculating the average pay over the past 12 weeks including the pay earned from overtime. This obviously has the effect of increasing the amount paid to the worker when they are on annual leave.
Because this judgement was not appealed, payment for normal non-guaranteed overtime in holiday should be given serious consideration by employers, but only for the first four weeks of leave taken in the leave year.
Still on overtime, an Employment Tribunal recently found that pay for ‘voluntary’ overtime should also be included in holiday pay but – again – only when this is done with sufficient regularity. Voluntary overtime is defined as overtime which the employee is free to accept or decline at their own will without any consequences. However, there is sufficient legal argument not to make any changes in this regard at the present time because the judgement, being at the first instance tribunal, is not binding on other tribunals.
The third relevant case, regarding commission payments, also resulted in the Employment Appeal Tribunal finding that holiday should be increased to reflect the commission earned. However, this is still the subject of ongoing court proceedings which could potentially overturn the decision.
Employers would be wise to watch this situation carefully over the coming weeks in order to keep up-to-date with developments which are likely to attract press interest given the significance of the topic.
Peter Done is managing director of law firm Peninsula
