As employees begin to flock in their droves to sunnier climates, it is a good time for us to remind employers of the law relating to annual leave entitlements. In light of the recent PSNI decision in Northern Ireland, discussed further below, employers should be more cognisant than ever of their statutory obligations when it comes to calculating holiday pay.
The Northern Irish Court of Appeal recently ordered that holiday pay for police officers and civilian staff should not be based solely on basic pay but should also include payment for overtime. The Court found that the holiday payments of more than 3,700 PSNI officers and support staff had been incorrectly calculated for a period of 20 years exposing the PSNI to liabilities reported to be in the region of £40m. This decision is not binding on courts in the Republic of Ireland but there is EU case law which has established that, in respect of the four-week period of annual leave granted under the Eurpoean Directive, from which our domestic legislation is derived, "normal remuneration" should be taken into account when calculating holiday pay. The concept of "normal remuneration" will obviously vary from one case to another.
In Ireland, the Organisation of Working Time Act (Determination of Pay for Holidays) Regulations 1997 ("the Regulations"), state that payments in respect of overtime should not be included in any holiday payment calculations. However, employers must be cognisant of the fact that the EU developments referred to above do suggest that this approach is inconsistent with European Law and there is scope for the WRC or Labour Court to disregard national law if it is inconsistent with the EU position. In light of these developments, this article serves as a timely reminder to employers of their statutory obligations to employees in terms of calculating annual leave entitlements and holiday pay.
Annual Leave Entitlements
Section 19 of the Organisation of Working Time Act 1997 ("the 1997 Act") sets out the entitlements of employees in respect of annual leave and provides that an employee is entitled to paid annual leave equal to the greatest of the following options;
- four working weeks in a leave year in which the employee has worked at least 1365 hours;
- one third of a working week of each month in the leave year in which the employee has worked at least 117 hours, or;
- 8% of the hours the employee works in a leave year (subject to a maximum of four working weeks per year).
While the expression "working week" is not defined by the 1997 Act, case law has determined that the term should be interpreted as referring to the number of days or hours encompassed in each work cycle. Full-time employees are usually entitled to 4 weeks' annual leave each year. The 1997 Act also provides that, where an employee works eight or more months in a leave year, the annual leave must generally include an unbroken period of two weeks. Employers should note that there is no statutory qualifying period for holidays and annual leave is accrued from the commencement of employment. An employee is entitled to utilise their annual leave entitlement within the leave year, or within six months of the leave year with the consent of the employer.
Employers may determine when employees utilise their annual leave entitlement within reason. Time restrictions may be put in place provided the employer takes into account the need for an employee to reconcile work and family responsibilities together with the opportunities for rest and recreation of the employee. As the annual leave entitlement set out in the 1997 Act is a minimum standard, employers may chose to provide employees with annual leave entitlements in excess of their statutory entitlement. Many employers utilise additional annual leave to entice new staff, with a small percentage of companies now going so far as to implement unlimited leave policies. Our Employment Team has advised on a number of such unlimited leave policies, so please do contact a member of our Team if this is something your business is considering.
In terms of the leave year, the clock runs from the 1st of April each year until the following 31st of March unless otherwise provided for in an employee's contract of employment. Therefore, employers should ensure that they expressly set out the intended leave year in employees' contracts of employment as failure to do so will result in the default position applying.
It is important that employers also are mindful that an employee's right to annual leave continues to accrue in a normal manner when an employee is on maternity, paternity, adoptive and parental leave. In relation to carers leave, employers should note that an employee's entitlement to annual leave only accrues in a normal manner for the first 13 weeks of carers leave and an employee is not entitled to accrue any entitlement annual leave thereafter.
On foot of a number of judgments from the CJEU1, the Workplace Relations Act 2015 introduced an amendment to the 1997 Act which provides that an employee who has been unable to utilise all or any part of their annual leave entitlements during a leave year, due to medically certified illness, is entitled to carry their statutory annual leave forward, up to a maximum carry over period of 15 months from the end of the relevant leave year. Employers should also note that, if an employee falls ill during a period of previously scheduled annual leave, they must be permitted to use their annual leave entitlement at an alternative time.
Calculating Holiday Payment
Section 20 of the 1997 Act provides that an employee is entitled to receive holiday pay that is based on normal weekly pay including any regular bonuses or allowances but excluding any pay for overtime. As outlined above, employers should be conscious of the EU developments and the risk that the WRC and/or Labour Court could disregard the overtime exclusion in the Regulations. Where employees' rates of pay vary from week to week, their annual leave will be calculated by reference to the average pay received over the previous 13 weeks. It is important to note that an employer may not pay an employee in lieu of the annual leave entitlement except in circumstances where the employment relationship is terminating. Whether or not to include commission payments often comes up as a query for our Team in practice and the answer will depend on the speific commission structure in place.
Given the time of year, employers should pause and reflect on the employee entitlements set out above and ensure that all employees are being afforded the opportunity to utilise their full holiday entitlements. In reviewing their internal HR systems, employers must be mindful of the obligations not only to ensure employees are availing of their annual leave entitlements, but also to maintain records of their compliance with the 1997 Act. Employers should also be conscious of the recent EU developments as employees may seek to challenge the current omission of overtime payments under Irish law on the basis that it is contrary to European law. The decision of the Northern Irish Court of Appeal in this case is currently under appeal so certainly one to watch and we will be keeping a close eye on this case as it progresses.
1 Schultz-Hoff v Deutsche Rentenversicherung Bund C-350/2006 and Stringer and Ors v. her Majesty's Revenue and Customs C-520/2006.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.