Is your business ready for the new holiday pay rules?

new holiday pay rulesEmma-Jane Flannery, Employment Law Associate at law firm Arthur Cox, outlines the facts.

Holiday pay is an issue that affects most businesses, and a number of recent rulings by the UK Employment Appeal Tribunal (EAT) will, potentially, have significant ramifications on how employers in Northern Ireland should calculate holiday pay going forward.

Why were the rulings made?
The rulings are a result of conflicts between the Working Time Regulations 1998 in the EU Working Time Directive. These came to light after two cases were brought before the EAT last year.

In the first case, the EAT recognised that regular non-guaranteed overtime should be considered in the calculation of holiday pay.

Non-guaranteed overtime relates to overtime which the employer doesn’t have to offer but if it does the employee is obliged to carry it out.

In the second case, the question was whether the same principles should be applied to a worker’s sales commission.
The worker argued a breach of the Regulations after realising that he only received basic pay whilst on holiday, despite his salary being made up of 40 per cent basic pay and 60 per cent sales commission every other pay day.

Unsurprisingly, the EAT concluded that since his commission was directly related to the work he carried out, it should be included for holiday pay purposes.

How does this impact local employers?
The processes by which some employers and workers calculate holiday pay is likely to change.

The first judgement is set to have the biggest impact in situations where non-guaranteed overtime is carried out by workers on a regular or consistent basis.

This can include any industry, but particularly those who have a significant number of hourly workers – from factories to shops; from construction to hospitality.

In addition, the ruling confirmed that if payments are usually made for time spent travelling to and from work as part of a worker’s normal pay, these may also need to be considered when calculating holiday pay.
The second decision will be of particular relevance to companies who employ sales teams, where commission schemes are regularly used to reward employees.
It still stands that no matter the working pattern, a worker should still receive holiday pay based on a ‘week’s normal remuneration’.
In light of the new standards, this now means that a ‘week’s normal remuneration’ may include items such as commission, bonuses and work-related overtime travel.

There is a cap on including all these additional payments in basic holiday pay, which means the inclusion of these only applies to the minimum four weeks’ holiday required by EU law.

What now?
Internal procedures, systems and policies need to be addressed, but they may also result in employees seeking back dated holiday pay.

In Great Britain, new regulations have been implemented, imposing a two year back claim period on holiday pay and other wage claims. We are yet to see whether Northern Ireland will implement similar legislation.

The tribunal also ruled that workers can only make back claims if it has been less than three months since their last holiday.
However, these claims could potentially have a serious impact on businesses in Northern Ireland if handled incorrectly.
Employers are advised to seek professional advice as to how to handle any holiday pay claims to ensure any potential issues are identified and mitigated.

In addition, they may need to seek advice on how holiday pay should be calculated for their individual businesses moving forward.

These payments will vary from business to business depending on types of work patterns (shift, casual, full-time, part-time) and remuneration models (hourly paid, salary, commission, bonus schemes, overtime).

With a strong Employment Law team, Arthur Cox is well placed to advise employers on what actions are most appropriate to their individual business. For further information, call Emma-Jane Flannery on 9023 0007.

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