So where does that leave employers when calculating holiday pay?
The good news is that the refusal of permission to appeal does give a degree of finality in terms of how commission payments should be treated when calculating holiday pay albeit the position will require to be looked at on a case by case basis. The Lock case itself will now return to the Employment Tribunal so they can decide by how much Mr Lock was underpaid and what the appropriate reference period for the calculation should be. Whether or not the commission scheme worked in such a way as to effectively compensate for the period of annual leave (even if it did not do so in accordance with how and when holiday pay should be paid) will also be considered.
More generally, the position with holiday pay, at present, is:-
- Guaranteed overtime (that is overtime that the employee is obliged to work if requested) should be included when calculating holiday pay.
- Non guaranteed but compulsory overtime should be included in holiday pay. Cautious employers may also want to include voluntary overtime following a decision from the Northern Irish Court of Appeal (Patterson v Castlereagh Borough Council) which found that in certain circumstances it should be included. However, the court did not hear full submissions on the key principles involved. A number of recent Tribunal decisions have followed suit including Brettle & Others v Dudley Metropolitan Borough Council where it was decided that where employees regularly worked overtime it should be included in the calculation of holiday pay, and that applied to all holidays under the Working Time Regulations (28 days) and not just the 20 days provided for under the Working Time Directive. This judgement is being appealed to the EAT which should result in more definitive guidance on whether voluntary overtime should be included when calculating holiday pay.
- In the case of allowances the key question is whether or not the allowance is intended to simply cover costs (in which case it will not be included) or whether the reason for the payment goes beyond that. In other words, if allowances paid to workers for travel go above what the actual cost is, then the additional element should be included in the calculation of holiday pay.
- In one of the leading cases, Bear Scotland, the Employment Tribunal were of the view that stand by and emergency call out payments should be included as they were intrinsically linked to the performance of an employee's duties. In Whitehead & Ors v EMH Housing Regeneration Limited the Tribunal decided that standby and call out allowance should be included because they had been paid for the last several years and the judge also made the point that not to include them would discourage workers from taking holidays.
- In the case of Wood & others v Hertel (UK) Ltd & another it was found that an incentive bonus (relating to hours worked, performance and not taking part in unofficial industrial action) should also be included in the calculation as, in the circumstances of this case, they were "normal remuneration" and intrinsically linked to the performance of the worker's task.
- It is not yet clear whether annual bonuses should be included. They are often intrinsically linked to an employee's performance but the key question then becomes whether they could be said to be "normal remuneration". It is likely that a case will be brought on this issue at some point in the future.
The case law in this area is still evolving, In the meantime when employers are considering which payments should be included in the calculation of holiday pay the two key questions are: (1) is the payment intrinsically linked to the performance of the tasks which the worker is contracted to perform; and (2) can the payments be described as "normal". We recommend that advice is taken prior to making any changes to holiday pay arrangements as a number of different strategies can be adopted.