Overtime and Commission Now Need to be Included in Holiday Pay
- Date: Tuesday 10th March 2015
In November 2014, the EAT (Employment Appeal Tribunal) confirmed that overtime should be included in holiday pay and new regulations on this will take effect from 01st July 2015.
In the case of Bear Scotland Ltd v Fulton, an employee contracted to work 35 hours per week regularly worked 9 hours per day, and frequently up to 12 hours per day in order to fill in for colleagues. When on holiday the worker was paid his basic hours only and argued that he was therefore in fact worse off when going on leave.
The Tribunal ruled that by paying employees a lower wage on holiday than they would have earned when being at work, employers were effectively discouraging them from taking their annual leave. Therefore, where payments are ‘intrinsically linked’ with their salary, guaranteed and/or compulsory, they should be included in the holiday rate.
Additionally the CJEU (Court of Justine of the European Union) ruled infavour of the employee in Lock v British Gas Trading a few months earlier. Lock was a sales consultant at British Gas Trading who regularly earned a commission that made up roughly 60% of his earnings. After taking two weeks leave Lock suffered severe financial loss, being only paid his basic salary for half of the month. The tribunal agreed that commission payments should be included in holiday pay.
- Any employees wanting to lodge a claim with the employment tribunal will have to have received an underpayment in the 3 months prior to the claim being submitted. Back-claims can only be made for up to 2 years.
- Since it is a European ruling the holiday pay changes only apply to 4, as opposed to 5.6 holiday weeks leave per annum.
- The case relating to commission payments has been referred back to the UK tribunal for a final decision. We know that commission payments will be included but are waiting for guidance as to a potential threshold of additional earnings and also a potential back-claim cap.
How will these Changes Affect You
If any of your employees work regular overtime or earn commission as part of their wages you need to take action now:
- Review your contracts of employment
o Employees regularly working overtime may in fact be entitled to more contractual hours. If an employee is for example contracted to work 35 hours per week but has worked an average 40 hours over the past 12 weeks you should offer new terms and conditions. This particularly applies to part time workers who may as a consequence also be entitled to an increase in benefits such as pension contributions. When reviewing hours also bear in mind the implications of the working time regulations.
- Time off in lieu does not necessarily mean no additional payments
o If you give time off in lieu for overtime you may not have to increase your holiday rate. However, the emphasis here lies on loss of earnings. Essentially, you need to ensure that the employee is not paid less while they are on holiday than if they would be at work. This can become tricky, particularly when commissions and time off in lieu are intrinsically linked. Seek help if you’re unsure how to deal with time off in lieu.
- Review your policies and communicate these to your staff
o It is important that employers are clear on the new rules and how they will apply in the workplace so you will have to develop appropriate internal procedures and communicate these to your employees. If you expect employees to have all overtime approved in advance or put a special process in place to monitor overtime, you have to make sure that your staff know about this. If you make reference to overtime payments in your contracts or your employee handbook you may have to make changes to the wording.
- Seek advice if your employees earn regular commission and you are unsure how to calculate their holiday pay.
o Unfortunately, no official directive will be issued as a result of the final UK tribunal hearing and legal guidance will therefore come out of future case law. Don’t be one of those cases; be proactive, speak to us and then agree fair rates of pay with your employees now.
- Implement effective processes and procedures
o Most importantly, if you do have to add overtime or commission payments to holiday pay you need to implement and monitor an appropriate process that is fair and consistent.
SSG’s HR and Employment Law advisory service can ensure that your processes, contracts and policies are fully compliant with current legislation. Should you wish to discuss this article please contact Manuela, who will be happy to help.