The Supreme Court has decided that holiday pay for employees shouldn't always be confined to basic pay and may also need to include any additional supplementary payments. Reema Jethwa from our Employment Team explains.
The case heard by the Supreme Court was called British
Airways v Williams. Although it involved claims by pilots, the
decision will have wider implications for workers generally. In the
Williams case pay for pilots at BA pay had three elements: basic
pay and two supplementary payments which varied according to the
amount of time that they spent flying. The supplementary
payments included expenses that were not taxable.
Pilots were entitled to paid annual leave but there was no guidance
as to how this should be calculated.
The Supreme Court initially referred the question to the European
Court of Justice, which decided that pay during annual leave must
include all elements of remuneration, if necessary, calculated on
the basis of an average over a representative period. Therefore,
holiday pay should effectively be 'normal pay' and include
pay intrinsically linked to the performance of the pilots'
tasks and relating to their personal and professional status.
However, payments intended exclusively to cover occasional or
ancillary costs, such as travel expenses, could be excluded.
What does this mean for employers?
This ruling may result in employees bringing more challenges
regarding the calculation of holiday and disputing what an employer
may consider to be 'normal remuneration'. For example,
employees who regularly work long periods of non-contractual
overtime may now argue that that is part of their normal
remuneration. Similarly commission payments, bonuses and
other allowances, previously excluded from the calculation of
holiday pay, may now be argued to form part of normal
remuneration.
To minimise the risk of a suddenly increased holiday pay cost,
employers should make sure they understand all aspects of their pay
and supplements to determine whether or not they should be included
in holiday pay. The basis of payments should be communicated
to all employees particularly where the basis of supplements may
have been inherited or have unclear historical origins.
Employers should make clear which elements are to cover the
expenses of carrying out the work (so they may be excluded from
holiday pay) and which elements are intrinsic to the work (so they
are included in holiday pay).
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.
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