Legislation impacts calculation of holiday pay

Back in the good old days holiday pay was calculated as basic salary divided by the 260 working days there are in a year i.e. £25,000 / 260 = £96.15 per day.

In 2014 though, the law was changed to reflect a European Court judgment that no-one should be disadvantaged by taking holiday. Put simply this mainly applied to those who regularly undertook overtime or regularly earned bonus/commission payments. For example, a sales person on £25,000 might actually earn £45,000 with bonus and commission and yet during their annual leave period they would only receive their basic pay, thus unfairly disadvantaging them and potentially leading to them being resentful about taking holiday!

We have had to wait a little while for more case-law on how this should work in practise and whilst the overtime issue was settled last year we’ve only just had a new ruling that gives more detail about the commission side of things! We can obviously provide very detailed advice on how this could be applied to your business and are obviously implementing this already as a matter of course for our existing clients. In the meantime, here are a few quick ideas of things you could be doing:

Given that the employer can specify holiday periods, you may want to consider changing your holiday policy to exclude periods where overtime or commission is more likely. This makes sense given that during your busiest periods you’ll need all hands on deck but quieter periods are ideal for annual leave and will cost you less.

Maintain meticulous commission, overtime and bonus payments so that calculating what is due is easier in the long run.

The ruling only applies to the “European” holiday allowance 20 days of the 28 UK employees are entitled to. Try to make savings on the other 8 days, particularly if you are in a business that works on most Bank Holidays such as retail.

If you have more questions or want specific advice contact one of our HR professionals on 0113 287 8150.