Barrister gives expert opinion on holiday pay ruling

Every employer who normally rewards their staff with any elements of variable pay must carefully review their holiday pay terms and other policies in the wake of recent court decisions.

This was the clear message given by Ed Morgan, barrister in the recent Bear Scotland v Fulton case, when he hosted two roundtable events last week for Taylors’ clients and contacts.

Against the backdrop of last year’s cases of Williams (the British Airways pilots’ flying allowances and travel pay case) and Bear Scotland (the non-guaranteed overtime pay case), it has been made perfectly clear that the courts and tribunals must regard all additional regular cash remuneration (over and above basic salaries and wages) as pay that is “normally received” and “intrinsically linked” to work.

And, Mr Morgan confirmed, the same holds for sales based commission payments, bonuses, shift premiums and the like.

So, what are the implications for employers who normally make these kinds of additional but non-guaranteed payments?

Put simply, if the payments are made within the period of 12 weeks before any holiday is taken that forms part of an employee’s or worker’s entitlement to leave under the Working Time Directive, those payments need to be taken into account when calculating the holiday pay that falls due.

If it isn’t, the employer will be in breach of their legal obligations and vulnerable to claims. As Mr Morgan noted, there are plenty of claimant law firms out there willing to take on the claims, especially if there is a sufficiently large enough group of eligible claimants within the business concerned.

Mr Morgan believes that the commercial implications of this development in the law relating to holiday pay could have a significant impact upon the fortunes of some employers.

However, provided employers recognise the symbiotic connections between holiday pay protocols, bonus schemes, commission arrangements, shift patterns and even annual shutdown periods, there are steps that can be taken to limit the costs involved.

At a time when many businesses are still operating on tight profit margins, the impact of this ‘new law’ may be substantial. Likewise, employers who do not fully understand their obligations, also risk over-adjusting their holiday payments to workers beyond that which is strictly necessary. What was made very clear in the advice and guidance given to attendees by Mr Morgan was that the solution for each employer will vary from case to case and that finding the right one will very much be a fact-sensitive exercise.