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Good news – yet another court decision on how to calculate holiday pay!

On Monday 10 June 2019, The Court of Appeal confirmed in the case of East of England Ambulance Service NHS Trust v Flowers, that yes, voluntary overtime should be taken into account when calculating holiday pay, thus confirming an earlier Employment Appeal Tribunal decision which we updated you on back in August 2017.

Specifically, the Court of Appeal ruled that where overtime is “sufficiently regular and settled for payments made in respect of it to amount to normal remuneration”, it is irrelevant whether or not the overtime is compulsory or voluntary; it must count towards the calculation of holiday pay.

The law for now

For now, this means that we do have confirmation, from the Court of Appeal, that holiday pay should include a calculation that factors in:

• Overtime of any sort (whether voluntary, compulsory, guaranteed or not) as long as it is broadly regular and predictable;
• Commission payments;
• Shift allowances;
• Stand by payments;
• Call out payments; and
• Any travel payments which are treated as taxable remuneration (as opposed to reimbursement of expenses).

The jury is still out on bonuses, but it seems as though productivity and attendance linked bonuses that form part of “normal remuneration” will likely count towards a holiday pay calculation, whereas more discretionary bonuses such as those based on company performance will not form part of holiday pay.

We are also still unclear, at least for now, on how holiday pay should actually be calculated in practice, specifically whether it should be with reference to pay during the preceding 12 weeks, 12 months, or somewhere between the two.

Future changes – 2020

Fortunately, it is hoped that the end (or at least the beginning of the end!) may well be in sight. Planned changes to the law in April next year, as part of the Good Work Plan, include a commitment from the government to legislate to confirm a 52 week reference period for calculating holiday pay (rather than the current 12 week period), giving employers much needed clarity in this area of law.

Practical Steps

For now, legally speaking, all workers who take holiday should, for the first 20 days of their holiday (as these changes only apply to the first 4 out of the 5.6 weeks statutory entitlement), receive a payment which includes all the elements listed above.

However, given the fact that the applicable reference period, at least until April 2020, is still unclear, and given that even after April 2020, there may be different approaches for different types of worker, this area of law remains a tricky one, and employers who are at all unsure should contact the Employmentor Team, so that we can advise on the most appropriate way for your business to plan for the changes next year, and beyond.

Indeed, given that the changes in April 2020 will apply retrospectively (in that they will require a calculation to be carried out on the basis of the previous 52 weeks) we would urge businesses to start to think now about assessing their workforce and how they are paid during annual leave, so as to ensure not only that compliance next year is practicable, but also to be more confident on staffing costs and budgeting moving forward.

It is also worth noting that a further change is afoot in terms of holiday for 2020, and that is the change to the early May Bank Holiday, which will move to a Friday (8 May 2020) as part of the commemorative events to mark the 75th anniversary of VE day.

If you would like to speak with any member of the Employment Team to chat through your options with regards to any of the above, please call 01603 281139 to arrange that.

Note: The content of this article is for general information only and does not constitute legal advice. Specific legal advice should be taken in any particular circumstance.