How much do I pay the employee when they are on holiday?

Since the decisions in Bear Scotland -v- Fulton (14) and Lock –v- British Gas Trading Limited (14), the way in which employers pay holiday pay has changed.

Under the EU Directive, workers should be entitled to their ‘normal pay’ when taking annual leave. Previously this was interpreted into National Law as meaning the employee’s basic wage only. However the Tribunal has ruled that this is unfair, and from this case has deemed that an average of the employees overtime and commission should now be included (averaged over previous 12 weeks) in any holiday pay.

It is worth noting at this stage that this will only apply to the first 4 weeks of the employee’s annual leave, as this is the minimum holiday allowance given in the EU Directive. The additional 1.6 weeks given under National Law and any additional annual leave you give to your employees over and above the statutory minimum will not be subject to this ruling.

At present it is inferred that this will only be implemented for mandatory overtime, as the ruling states nothing about voluntary overtime (unless regularly worked). However this may alter at a later date.

We therefore at this stage are recommending that you commence paying employees in this manner, as neither case has yet been appealed.

In order to be fair to all employees and stop employees from ‘cherry picking’ when it will more profitable for them to take annual leave, we recommend that you work out an annual average for each employee over a 12 month period. This will then give you a set figure which will be applied throughout that leave year each time that employee takes annual leave.

You should then review and renew this figure when the next leave year commences.

If an employee commences employment with you part way through a leave year, then the 12 week average can be used, until the employee has completed their first 12 months of service.