Policy News Journal - 2014-15

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.

Statutory holiday pay must include commission

23 May 2014

The European Court of Justice (ECJ) has ruled that under the Working Time Directive a worker’s statutory holiday pay must not be limited to basic salary where commission is a part of remuneration. Under the Working Time Directive, workers are entitled to paid annual leave. However the Directive does not specify how holiday pay should be calculated, this is left to national legislation to determine. The Directive is applied to UK law by the Working Time Regulations which stipulate that a worker is entitled to be paid during statutory annual leave at a rate of a week's pay for each week of leave. In this case British Gas v Lock , Lock was a salesman on a basic salary with variable commission paid in arrears. His commission depended not on the time worked, but the outcome of that work, in the sales he achieved. When Mr Locke took annual leave in 2011, he was not able to earn any commission so British Gas only paid him his basic salary for the leave period. So Lock brought a claim to the employment tribunal for his low holiday pay. Daniel Barnett’s employment law bulletin summarises that the employment tribunal made a reference to the ECJ to ask, broadly, if in calculating holiday pay, Member States must take measures to ensure that a worker taking leave is paid by reference to commission payments that the worker would have earned if at work, and, if so, how to work out that holiday pay. The ECJ answered 'yes' to the first question, but left the calculation as a matter for the national courts to decide on the basis of the rules and criteria set out in the ECJ's case law on paid leave, and in light of the objective of the directive, to ensure that workers take paid leave.

The case reaffirms the principle that where a worker's pay consists of a basic salary and variable elements directly linked to work, then holiday pay should be paid on the basis that a

CIPP Policy News Journal

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