Are You Worried About Holiday Pay?

Perhaps you should be. Arrears of holiday pay have cost the John Lewis Partnership the princely sum of £40m, an average of £580 for each employee. Why?

The EU Working Time Directive (2003/88/EC) requires member states to give workers at least four weeks’ paid leave a year. The Working Time Regulations 1998 and the Employment Rights Act 1996 allow employers to calculate statutory holiday pay based on basic pay only, excluding commission and overtime.

But recent cases from the European Court of Justice (Williams v British Airways [2011] IRLR 948 and Lock v British Gas Trading [2014] IRLR 648) decide that holiday pay must be the same as ‘normal remuneration’, including overtime and commission which is ‘intrinsically linked’ to the job. ‘You must get your rest, so you must get your normal pay to stay away.’

The Employment Appeal Tribunal is due to hand down a decision, any day now, as to whether the UK rules on calculation of holiday must be amended to comply.

The answer is, almost certainly, ‘yes’. This outcome could have big financial implications for many businesses, increasing annual staffing costs, as well as the cost of previously underpaid holiday pay going back as far as 1998. There may be future and retrospective implications for final salary pensions, as well as bonuses based on a percentage of pay.

Some employers, like John Lewis, have already settled back-pay claims. Others, adopting a ‘wait and see’ approach, will wake up with a hangover. Legal and practical steps can be taken now to minimize the cost. We can help.


Geoffrey Bignell, Solicitor & Chairman, Just Employment Ltd.

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