Holiday Pay - what should be included?
Case law has held that 'holiday pay' should not be limited to basic salary but should correspond to 'normal remuneration', which in reality means that a worker's holiday pay should include:
- remuneration that is linked to the performance of tasks which they are contractually obliged to perform i.e. an individual performance based bonus or commission payment; and
- regular overtime (including where that overtime is not guaranteed and is worked voluntarily).
Bonus payments will be included in holiday pay if the bonus is linked to individual performance. For example, if a worker works in a warehouse and receives a bonus based entirely on individual performance for their picking and packing numbers, then this bonus will be included in the calculation. The rationale behind this is to ensure that individuals are not financially disadvantaged by taking holiday; by including an element of bonus pay, the worker is not missing out on an element of his usual pay whilst he is away and therefore unable to pick and pack.
In respect of overtime, compulsory and guaranteed overtime should be included in holiday pay. What should also be included in holiday pay is overtime that is worked voluntarily by a worker and where that overtime is worked regularly over a period of time.
There is no set rule as to what constitutes regular overtime, but we consider a common sense approach to be the right approach. For example, if someone has worked overtime twice in a period of 6 months, we do not consider that to be regular. However, if someone works overtime at least once every 4 weeks, we would consider that to be regular. Therefore, if the overtime is being worked on a regular basis, it should be included in the holiday pay calculations.
Please be aware that the requirement to calculate 'normal remuneration' only applies to the first 20 days of holiday (this is because the requirement derives from European law, which requires 20 days' holiday each year). Practically, however, it may be easier to carry out the calculation for all holiday entitlement, rather than deciding which 20 days of holiday to calculate the additional entitlement to pay for.
Benefits in kind, non-performance related bonusses, reimbursement expenses, irregular overtime and one off payments or bonuses do not need to be included in the calculation of holiday pay.
If you consider that the way you calculate a worker's entitlement to holiday or the way you calculate holiday pay may need reviewing, please get in touch with Jon Taylor on 0345 074 2374 or email@example.com