UK employers recommended to address holiday pay policies after European Court decisions

EU decisions have far-reaching effects, including on UK HR policies. Our local expert explains the most recent changes.

It is recommended that employers address their holiday pay policies in light of recent European Court and Employment Tribunal decisions which have paved the way for a change to the calculation methodology to be used when working out employees holiday pay.

The issues addressed in the recent cases related to employees who received variable pay due to either:

  • Variable working hours/shifts
  • Variable pay rates (taking account of when the work was performed)
  • Variable pay due to commission received in the normal course of employment or other pay which is intrinsically linked to the duties a worker is required to carry out as part of his contractual obligations

The EU judgements confirmed that an employer must take into account these variable elements when calculating holiday pay. Somewhat surprisingly, overtime - unless compulsory and guaranteed - is not currently included as one of the variable pay elements which should be taken into account when calculating holiday pay. However, this decision is currently being challenged and is therefore subject to change.

Currently all employees in the UK are entitled to a statutory minimum of 5.6 weeks (28 days) holiday (full time) under the Working Time Regulations 1998.

Please note however that the recent European Court decisions have been made taking into account the Working Time Directive which only provides for a minimum of four weeks holiday which has an impact on some of the calculations.