Calculating holiday pay is an increasingly tricky task for employers.
We’ve seen some clarity from rulings in recent cases including the decision that holiday pay calculations are based on the EU statutory 4 weeks and not the UK holiday norm of 5.6 weeks.
But there are still ongoing cases regarding the calculation of holiday pay which could have a financial impact on businesses.
One of the main issues is what constitutes the pay that an employees’ individual holiday pay is based on. A European Court of Justice ruling has already clarified that holiday pay has to reflect commission not just an employees’ basic salary.
Another case is still waiting for the outcome of a UK tribunal’s decision and will further affect how holiday pay is calculated.
The subject of the ruling is an employee who received holiday pay including commission, however the commission received as part of his holiday pay was the result of sales activity from previous months. During the holiday he wasn’t doing further work to earn commission and as his salary was made up from an average of 60% commission earnings, his pay was adversely affected in the months following the holiday. Depending on the final outcome he would now be entitled to the commission earned previously, plus holiday pay which included basic plus a commission average – nice holiday!
Calculating a monthly pay average
It’s been suggested that average pay should be calculated based on a 12 week reference period and take into account actual pay, commission and similar payments. However it’s still unclear whether other forms of variable pay will be included and whether a 12 month rather than 12 week reference period would be fairer for employees with fluctuating pay.
Whatever happens, employers may have to brace themselves for financial claims for historical payments and going forward.
“More complicated and costly holiday pay calculations seem inevitable. This case, together with Bear Scotland Ltd v Fulton, means holiday payment calculations are moving towards being based on workers’ average earnings in ‘an appropriate reference period’ leading up to their holiday for an ever-increasing group of workers (not just those without normal working hours).”
Connie Cliff, PSL Principal Associate, Wragge Lawrence, Graham & Co
We can help employers ensure that their holiday pay calculations are as accurate as possible. Our Chronologic Workforce Management System (CWFMS) can be customised to each organisation’s specific requirements. Simpler time and attendance modules offered as part of some EPOS or other systems won’t be able to cope with these sort of complex calculations for commission based staff in particular.
It’s also been noted that if holiday pay for commission based staff is calculated to include average commission, employees may try to book holidays during periods where their earnings are historically lower – we can help you manage holiday requests and calendars to ensure you have the right level of staff cover at all times!
If you have employees working on commission and want to stay on top of pay rates – get in touch for a chat about how we can help you.