Holiday pay – are you being underpaid?

Do you work paid overtime on a regular basis? Or is your pay largely based on commission? If so, did you know you may be entitled to a greater amount of holiday pay than your employer has been giving you?

When you joined your company you should have been given a written contract of employment, including things such as salary, normal hours worked, overtime arrangements, commission structures, bonus schemes and such like. Another term included in your contract should be the amount of paid holiday you are entitled to. In the UK there is a statutory minimum of 28 days in each leave year, including the usual 8 bank/public holidays, for somebody working full time. This is more generous than the EU minimum of 20 days’ paid holiday in each leave year. Many UK employers do of course give their staff more than the statutory minimum of 28 days.

Employment contracts are often silent about how much the employee should be paid for a day’s holiday. Those contracts which do say something on the subject invariably state the employee will receive his or her basic pay whilst on holiday. In practice, virtually all workers receive their basic pay, and nothing else, when they are on leave.

Over the past couple of years there has been a growing realisation that this practice is unfair on people who receive regular overtime pay or sales commission on top of their basic pay. These workers get paid less whilst on holiday than they do when they are working and that cannot, as a matter of simple logic, be right.

Recently there have been some well-publicised cases of workers in these two categories who have gone to court and won the right to receive holiday pay at a rate which reflects their full ‘normal’ rate of pay rather than at just their basic salary rate of pay. This was so even though under their contracts of employment they were only entitled to receive basic pay whilst on holiday. The best known of these cases was Bear Scotland Ltd v Fulton which was decided in November 2014.

However, because the court decisions in these cases have been based on EU law, this entitlement to an enhanced level of holiday pay only applies to the EU’s minimum entitlement of 20 days in each leave year. In nearly every case this will in practice mean the first 20 days’ paid holiday (including public/bank holidays) a person takes in each leave year. This is still the majority of most people’s annual holiday.

To show what a difference these court decisions can make, let us look at an example of a salesman on a basic salary of £26,000 (£100 a day) who takes 5 days’ paid holiday in April 2015. His company’s leave year began on 1 January 2015 and he had only taken 2 days’ holiday in the year prior to his 5 day break in April. Normally his employer would only have paid him basic salary whilst he was away (i.e. £500) because under his contract of employment he was only entitled to receive basic pay while on holiday. However, because he earned an average of £600 a week in commission he was entitled, following the recent court decisions, to be paid £1,100 instead of £500 for his 5 day holiday.

What to do?

If you are someone who should be benefiting from these recent court decisions but your employers have done nothing to suggest they are now going to give you enhanced holiday pay, you should ask them to confirm that they are now going to do so. Some employers are ahead of the game and have already put enhanced holiday pay arrangements into place for their relevant staff. However, many businesses have not yet done this – either because they are unaware of the need to make the change or because they are aware of the need but have decided to bury their heads in the sand.

If your employer has put, or now agrees to put, enhanced holiday pay arrangements into place for you, you should find out exactly how these arrangements will operate. Will they, for example, apply throughout the company’s leave year or only to the first 20 days’ paid holiday taken in the year? How will the amount of the enhanced payment be calculated? Will it be based on average overtime/commission earned in the 12 weeks immediately before the holiday? Or in the 12 months before the holiday?

What if your employer refuses to budge and continues to pay you only basic salary when you are on holiday? Unfortunately the only course open to you, if you want to pursue the matter, will be to wait until after you have taken your holiday and been underpaid for the period in question and then to bring a claim against your employer in the employment tribunal for the amount of the underpayment. However, there are two important things to remember:

• You may only make a claim in respect of EU minimum holiday entitlement. Any holiday taken after the first 20 days in a leave year is not covered by holiday pay protection unless your employer agrees to it.
• You have only three months from the date of any holiday pay underpayment in which to start an employment tribunal claim, failing which your right to claim in respect of that underpayment is likely to be lost for ever.

What about back claims?

What if you have been working for the same employer for years and have only been receiving holiday pay at the basic salary rate of pay rather than at the actual normal rate of pay taking into account overtime or commission earnings?

Can you now bring a back claim in respect of historical underpayments?

The general rule is that where there has been a series of unpaid (or underpaid) wages then the employee can pursue his employer for all the unpaid (or underpaid) wages in the series going right back to when the series began – provided he starts an employment tribunal claim in respect of all the non-payments or underpayments within three months of the date of the last one in the series. However, in the recent Bear Scotland case the Judge put the cat amongst the pigeons by ruling that a series of holiday pay underpayments will have been broken if at any stage in the series there is a gap of more than three months between any of the consecutive underpayments. Where there has been such a break, according to the Judge, the employee can only claim in respect of underpayments suffered after the break.

This ruling, combined with the fact that claims can only be made in respect of historical underpayments which relate to EU minimum holiday entitlement (i.e. the first 20 days’ holiday in any leave year) have drastically reduced the scope for anyone to bring a substantial holiday pay back claim.

The ruling has been much criticised by legal commentators and it had been expected that the employees in the Bear Scotland case would pursue an appeal but the Unite union, which was supporting the employees’ case, announced that it would not be appealing.

So for now it seems employers, worried about a deluge of claims for historical holiday pay underpayments, can rest easy a little. However, individual employees – particularly those who have consistently taken less than their full annual holiday entitlement but who have nevertheless taken regular short holidays (including bank/public holidays) – may still be in a position to pursue worthwhile back claims. If you are in this category, though, there are two reasons why you need to get on and start your claim:

• If your employer now heeds the recent court decisions and starts paying enhanced holiday pay, you will be out of time to bring a back claim unless you start employment tribunal proceedings against your employer within three months of the last occasion on which you suffered an underpayment.
• The Government has recently introduced the Deduction from Wages (Limitation) Regulations 2014 which will come into effect on 1 July 2015. After that date, all unauthorised deductions from wages claims (including claims for underpaid holiday pay) that are started in the employment tribunal will be limited to deductions (or underpayments) suffered by the claimant within the previous two years. So if you have a claim for underpaid holiday pay potentially going back more than two years, you need to start tribunal proceedings before 1 July.

What to do next?

If you receive regular commission or overtime payments, particularly if they are substantial, and those payments are not – or have not been – reflected in the amount of holiday pay you receive from your employer, you might benefit from specialist advice from IBB Solicitors’ employment law experts. Call us today on 03456 381381 to see how we can help.