In February we reported that the appeal by British Gas against the finding that their employee, Mr Lock, was entitled to commission included in his calculation of holiday pay was unsuccessful. So exactly what should and should not be included, and is there any certainty in sight for employers trying to deal with this thorny issue?
Unfortunately the answer to the latter question is that there are still some significant questions to be answered. Some of the more recent decisions have been made by the Employment Tribunal and therefore are not binding on other Tribunals - input will be needed from the EAT or a higher court before the position will become completely clear. For the time being employers should consider the following 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, all being focussed on whether the payments could be considered to form part of "normal 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 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;
- As reported in February, the present position with commission is that it should be included in the calculation of holiday pay (British Gas have though appealed this decision); and
- 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 clear however whether annual discretionary 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 point at some point in the future.
Overall the position remains somewhat unsatisfactory for employers who will need to await the outcome of outstanding appeals before any more guidance is available. In the meantime employers should keep the area under review. The two key questions are: (1) is the payment intrinsically linked to the performance of task 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.