It used to be so simple; workers on holiday for a week would receive their basic weekly salary for that period. No difficult calculations were necessary and there were no (or at least very few…) disputes about unpaid entitlements.
However, a number of cases in recent years have changed the landscape drastically. It has been confirmed that workers are entitled to receive their “normal pay” when on holiday – which might include variable pay such as overtime and commission. Otherwise workers could be deterred from taking leave, posing a risk to their health and safety.
Flight supplements received by British Airways pilots when flying, commission earned by a British Gas salesman (which accounted for around 60% of his total remuneration) and overtime payments made to a road maintenance worker on a regular basis have all been held to fall within the definition of “normal pay” for these purposes. And so they must be paid when the relevant workers are on holiday.
Workers in the hotel and leisure industries, many of whom are paid an hourly rate and are entitled to receive variable pay such as shift allowances or overtime pay, are among those most likely to be affected by this change.
What has not yet been decided definitively is how employers should calculate these payments when a worker is on holiday. If the payments vary from week to week or month to month (as is likely), what period should be used for the purposes of calculating an average for the purposes of holiday? One month, 12 weeks or longer?
Workers can potentially make a backdated claim for underpaid holiday for a period of up to two years and so any employer that makes regular variable payments to its employees such as bonus, commission, overtime, shift allowances or similar should be considering this matter now in order to avoid accruing a significant liability.