Historically, holiday pay was always calculated by reference to an employee’s basic pay. This principle was challenged in 2011 in a case involving various British Airways employees (Williams and others v British Airways plc), who successfully claimed that various allowances that they normally received in addition to their basic pay should be taken into account when calculating their rate of holiday pay. According to the Court, it was necessary to consider whether the additional allowances were intrinsically linked to the work which the employees were contracted to perform. The Court decided that there was a sufficiently close link and that the allowances should therefore form part of holiday pay.
This principle was applied in a further case in 2013 which involved non-guaranteed overtime payments. In that case the Court ruled that the question in each case was whether overtime payments were received with sufficient regularity for them to be treated as part of an employee’s normal remuneration. Even though opportunities for overtime working were not guaranteed, the fact that overtime was regularly worked and paid could be sufficient for the overtime pay to be treated as a normal part of an employee’s pay.
This issue continues to be the subject of litigation. A recent Employment Tribunal case (Brettle and others v Dudley Metropolitan Borough Council) involved a group of public sector employees who claimed that their holiday pay had been incorrectly calculated in that it failed to take into account payments in respect of voluntary overtime, voluntary standby and voluntary call-out allowances. The employees varied in the degree of regularity with which they worked voluntary overtime or participated in rotas under which they might be on standby or be called out.
The Tribunal decided that although the rotas in question were voluntary, once an employee’s name was on the relevant rota, he was obliged to attend the workplace or to be available for standby. For this reason the Tribunal decided that the payments in respect of standby and call-out should be treated as being part of the employee’s normal pay for the purposes of calculating holiday pay. They decided that additional voluntary overtime should be treated in the same way where overtime was regularly worked.
More recently, the Court of Appeal has considered a case involving an employee who normally received payments of results-based commission (British Gas Trading Ltd v Lock). The Court ruled that this too should be treated as forming part of the employee’s normal pay for holiday pay calculations. It also accepted that an employee’s normal weekly pay should be calculated by reference to the average pay received during the period of 12 weeks preceding the holiday.
Employers are only obliged to take account of these additional elements of pay in respect of the holiday pay due for the basic minimum 4 weeks of paid annual holiday which employers are obliged to provide under the EU Working Time Directive. This therefore may complicate the calculation of holiday pay for periods of holiday in excess of 4 weeks.
These cases illustrate the way in which Tribunals are likely to approach the question of holiday pay in cases where an employee regularly receives sums in addition to basic pay as part of his normal remuneration.