Calculation of Holiday Pay for Workers

There has been much litigation in recent years regarding what pay is properly payable by employers to their workers when on holiday.  The current position is:-

• Employees/workers (not the self-employed) are entitled to a minimum of 28 days paid annual leave (20 days minimum under European law, plus a further minimum 8 days under UK legislation).

• Employees/workers do not use up any annual holiday entitlement whilst on sick leave or maternity leave.

• Annual holidays unused at end of year because of lengthy sick/maternity leave roll over into next holiday year (max of 20 days).

• To calculate holiday pay due, Courts/Tribunals analyse the worker’s “normal” net pay in the 12 weeks immediately before the holiday.

• Where the worker’s “normal pay” comprises basic pay plus additional elements, these extra payments are to be included in the holiday pay calculation. (but only for max of 20 days annually, unless contract includes more). 

• To be part of “normal pay”, additional pay elements must be “regular” (in 12-week period before holiday) and also “intrinsically linked” to the worker’s performance of duties. This is assessed on case-by-case basis. 

• Courts have determined that included as part of “normal pay” in calculating holiday pay are:-

1. Commissions paid to workers.
2. Pay for overtime guaranteed contractually to workers.
3. Pay for non-guaranteed overtime where compulsory to do overtime offered.
4. Purely voluntary overtime.
5. Payments made to reflect worker’s status/seniority/specific expertise.
6. (Probably) regular bonuses rewarding a worker’s performance.

• Not to be included are:-

1. Expenses paid reimbursing worker for costs incurred.
2. Exceptional/unusual payments (eg non-regular discretionary company personal bonuses).
3. (Probably) bonuses unrelated to worker’s own performance.

Due to strict Employment Tribunal time limits, any worker suspecting underpayment of wages whilst on holiday should seek urgent legal advice.