New rulings on calculating holiday pay

In May 2014, a Leicester employment tribunal referred a case to the European Court of Justice. The issue was whether contractual commission should be taken into account when calculating holiday pay.

The ECJ has ruled that it should, partly on the basis that otherwise employees would be discouraged from exercising their right to annual leave, as set out in the Working Time Directive.

This however is not the end of the matter. The ECJ has referred the case back to the UK tribunal to decide if domestic legislation can be interpreted in line with the ruling.

If so, there will then be the question of how holiday pay should be calculated. The Advocate General suggested taking the employee’s average earnings over the previous 12 months.

However this was not repeated in the ECJ’s judgement and there is no precedent for this in UK law, so there is no immediate guidance that can be issued to UK employers.

The question of holiday pay is not limited to commission. UK tribunal hearings will take place in July 2014 to consider whether paid overtime should be a factor in calculating holiday pay.

What should you do now?

There is little you can do until a judgment is reached, other than run cost forecasts. We will publish information as soon as it is available.

In the meantime, if you would like to discuss holiday pay or any aspect of employing people, please get in touch.

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