Judgement expected shortly over holiday pay calculations

27 October 2014

It is with relief that we note from the Sunday Times that a decision is expected imminently in this matter.

Thanks to the Sunday Times for their report:

MINISTERS are to intervene in a long-running row over how companies calculate holiday pay, in a bid to stave off the threat of huge backdated claims from staff.

Rulings in two crucial employment tribunal cases are expected within days. They relate to whether employers should include overtime when assessing holiday pay. A third judgment, expected next year, will deal with the inclusion of sales commissions.

Until now, holiday pay has been assessed by working out the average basic pay received by a member of staff in the weeks leading up to their leave.

Workers and trade unions have challenged this, arguing it is unfair and that extras such as commission and overtime should be included. However, bosses fear that if they succeed, as many legal experts expect, it will open the door to a slew of legal claims that could force companies to make big backdated pay awards.

The Department for Business, Innovation and Skills is keen to avoid a scenario that could lead to companies owing hundreds of millions of pounds and put many at risk of failure.

The department said: “We want to get the right balance between the needs of employers and employees. We do not believe voluntary overtime should be included in holiday pay and are concerned about the potential impact on employers.”

It added: “We understand the deep concern felt by many employers and have intervened in the Employment Appeal Tribunal cases to make our views clear.”

The intervention may come as a relief to employers’ bodies such as the CBI and the Institute of Directors, which have warned of the financial fallout. Katja Hall, deputy director-general of the CBI, said: “Backdated claims on holiday pay could lead to bills of millions of pounds for each business, and ultimately threaten their existence.”

CIPP comment   Since the earlier European Court judgements, British employers have been in an untenable position, and we have been unable to provide them with guidance as to how to calculate holiday pay as there has been absolutely no direction as to what payments should be included, nor how far back earnings should be taken into account.   The CIPP view is that we urgently need a decision to end all the uncertainty in this area, and we echo the call from the CBI, that the Government should be pragmatic in this matter, as backdated holiday pay claims could pose a threat to many businesses.