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Holiday Pay — key legal changes

ARTICLE ORIGINALLY PUBLISHED MARCH 2015

It is difficult for professional hairdressers to keep up with all the changes that occur in the world of Employment Law; particularly when it is a Tribunal or a European case. But, following two Court cases, our understanding of the rules regarding holiday pay has changed significantly. The cases have been publicised in the media and cannot therefore be ignored .Remember the rules do not apply to self employed practitioners.

1 Holiday pay includes overtime

At an Employment Appeal Tribunal (EAT) it was confirmed that payments for overtime which employers are required to work is part of normal remuneration and therefore to be included in the calculation of pay for holiday pay. So if my contract is for 40 hours but I regularly work more then I shouldn’t be paid 40 hours when I take a weeks’ holiday.

It is easy to see how the same principle applies to part time salon staff who have irregular hours or regularly work additional hours. It was said that failure to pay this was effectively an unlawful deduction of pay.

There is obviously a cost to this but what about back pay? I recommended my clients immediately backdated this to the start of the current holiday year. The Tribunal have ruled that claims for arrears were broken where a period of three months or more has elapsed between each deduction (each holiday taken).

The ruling will hardly make a difference where additional hours are intermittent.

2 Holiday Pay to Reflect Average Earnings

The test case involved an employee of British Gas. His case has worked its way up through the British Tribunal system to the European Court of Justice (ECJ).

He worked in sales and received commission in arrears. When on holiday he didn’t sell anything which also meant in future weeks his earnings were also affected Therefore, there was a clear disincentive for him to take holidays.

The conclusion was clear, ie that his pay should take account of what he would have earned if he had been working.

The parallel with a salon is clear. If I earn commission, and my wages fluctuate, and my holiday pay doesn’t include an element of commission then there is a financial penalty for taking holidays.

The onus is now on the government to update UK legislation.

What Does it Mean?

My advice is that where staffs earnings vary because of additional hours or commission then, when staff take holiday, I would calculate the rate by paying the average earnings over the previous 12 weeks (ignoring weeks when the employee was on holiday or sick). The ruling only applies to the statutory 20 days but many employers will ignore this advice. It would mean you would either pay 8 days of the 28 at a lower rate (but which 8?) or you would pay the 8 bank holidays at a lower rate. I think this just adds to the confusion.

Other Holiday Issues

Its worth reminding readers about other holiday issues

Staff start to accrue holidays from day 1. It is legal to add into the contract that eg holidays cannot be taken in the first 3 months or 6 months but I doubt this makes business sense as this is the time the new employee is probably quiet and it just means you have to cram a years’ entitlement into 6 or 9 months.
You can prescribe that eg at least 2 weeks leave has to be taken in the periods January to April and October/November.
You might also want to reserve the right to fix one weeks holiday in case you have a chrsitmas close down or need to refurbish.
The minimum annual leave entitlement, including 8 bank holidays is 28 days, that is 2.33 days a month.
Where staff work irregular hours eg different hours on different days it makes sense to allocate their holiday entitlement in hours rather than days.

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