As the Christmas holidays get closer, the key HR headache may be calculating how much employees should be paid for them. In November, the EAT ruled that all employees are entitled to “normal remuneration” for their EU holiday entitlement of 4 weeks a year (see our briefing on this topic). This means factoring in payments such as overtime, allowances and commission which, under UK law, did not previously need to be included in holiday pay for employees with normal working hours.
You can hear EEF’s interpretation of the ruling and our advice on how to comply with it by booking a place on one of our breakfast briefings. In the meantime, here is our festive guide to holiday pay:
- Forget the 12 days of Christmas, what about the 12 week reference period? For workers who have no normal pattern of work or whose pay varies from week to week, you find their “normal remuneration” by taking an average of their remuneration over the 12 weeks prior to the holiday. However, the averaging provisions are complex and payroll systems are often not geared up to operate them. Many member companies are finding this to be a big problem.
- Decide what to put in the stocking. The EAT’s ruling relates to compulsory overtime. On the facts of the cases in front of it, the EAT ruled that the overtime was so regularly required that it was part of the employee’s “normal remuneration”. However, the ruling does not directly address the question of when voluntary overtime, or overtime which is worked only occasionally, might be included within the scope of “normal remuneration”. The EAT also left in place most of the complex existing UK law for calculating holiday pay, which turn on the employee’s working pattern. The upshot is that employers need to grapple with what counts as normal remuneration and what counts as normal working hours for their employees (or whether they have any normal working hours). Another headache is that many payroll systems cannot differentiate between types of working patterns or types of overtime when it comes to calculating holiday pay.
- Make your New Year’s Resolution now. Many of us will be starting new holiday years on January 1st 2015. One good resolution could be to sort out the order in which different types of holiday entitlement are used up in the holiday year. For example, if you are going to pay only Euroleave (but not all holidays) at the new rate, you need to have a system for knowing which days count as Euroleave. The EAT ruling could have been clearer on the order, but it is open to employers to put the issue beyond doubt. If you don’t agree or direct anything, there is a working assumption that Euroleave is the first 20 days taken in the holiday year, including public holidays, followed by the 1.6 weeks UK statutory holidays, then any extra contractual holiday. This would mean that, for those businesses with calendar holiday years, Thursday 1 January could well be the first Euroleave day. However, this is subject to the point about carry over (below).
- Ignore the hang-over and think about the carry-over. Are your employees allowed to carry forward unused holiday entitlement from one holiday year into the next? If so, this is likely to be contractual holiday, because Euroleave and UK statutory leave cannot be carried over. If your policy is that employees must use up carried over holidays by a particular point in the year then this is likely to change the order in which holidays are taken, with the result that carried-over holiday may well be used up first before Euroleave. You might want to have a new policy on when carried forward leave is taken.
- Beware the Ghost of Christmas Past. The EAT ruling seriously dampened any expectations of large retro payments for past Euroleave. According to the ruling, if there is a 3 month gap between payments for Euroleave, then claims in respect of the Euroleave before the gap are out of time and extinguished. So, if employees do use up their Euroleave towards the beginning or middle of each holiday year then there is hopefully a gap of at least 3 months at the end of the holiday year before they begin taking Euroleave again at the start of the next holiday year. This means that, for example, employers with a calendar holiday year may be unlikely to face claims extending to 2013 Euroleave, and even claims relating to 2014 Euroleave may now be out of time. But do check your holiday records, and take advice.