There was considerable publicity in 2014 about some important court decisions concerning the calculation of holiday pay.

In May 2014 the ECJ decided in the case of Lock v British Gas Trading Limited, that holiday pay should be based upon “normal remuneration”.  Up until this point, the position was that this was basic pay and contractual overtime.  In Mr Lock’s case, he earned a low basic pay which was supplemented by commission payments.  The ECJ decided that commission was part of his “normal remuneration”  and should have been taken into account when being paid holiday pay.

In November 2014 the EAT issued decisions in the cases of Bear Scotland Ltd v Fulton & others, Hertel (UK) Ltd v Woods & others 14 and Amec Group Ltd v Law & others and confirmed that non-contractual or non-guaranteed overtime should also be included in holiday pay calculations.

After concern was raised regarding the extent to which employees could raise claims for under-paid holiday pay, the government implemented the Deductions from Wages (Limitation) Regulations 2014, limiting back pay claims to two years from the date of the last underpayment.

However, as is typical in the legal world the above cases were not an end to the issue and the above cases continue to have points appealed through the court system.  The latest decision in the Lock case was issued by the EAT on 22nd February which was that the employer’s appeal should be declined and the decision of the ECJ stands.  As such, commission is still to be regarded as part of a holiday pay calculation.

The Bear Scotland case continues to rumble through the appeal process and a hearing date is still awaited from EAT.

It seems unlikely that the fundamental position as decided in the Lock and Bear Scotland cases will change and employers should now been taking commission, overtime, shift and attendance bonuses into account when calculating holiday pay.  Failure to do so may result in claims for unlawful deduction from wages going back, potentially, for two years.

It is also important to remember that the above cases were all decided under the Working Time Regulations 1998 and deal with employees’ statutory minimum holiday entitlement of 5.6 weeks holiday per year.  Many employers are more generous and give employees a greater contractual holiday entitlement.  In this case they are free to pay basic salary only if desired but they must ensure this is written into the employees’ contracts of employment and relevant policies.

For more detailed information or advice, please contact Jayne Holliday at Thursfields Solicitors on 0121 227 3850.

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