Acas guidance on calculating holiday pay

The following is the text of new guidance from ACAS on calculating holiday pay. It relates specifically to overtime, commission, work-related travel and sick leave issues.

Employers and employees should take specific legal advice on this as ACAS says “”there is no definitive answer about how holiday pay calculations must be made”. The final point in their guidance is: “Until further clarification is available, employers may wish to seek legal advice based on their individual circumstances.”

The full guidance is: –

Calculating holiday pay

In addition to current legislation, a number of recent court judgments should be considered when calculating holiday pay.

This means that the rules employers and workers follow to calculate holiday pay may need to be updated.

Key points:

  • Guaranteed and normal non-guaranteed overtime should be considered when calculating a worker’s statutory holiday pay entitlement but there is currently no definitive case law that suggests voluntary overtime needs to be taken into account.
  • Commission should be factored into statutory holiday pay calculations.
  • Work-related travel may need to be factored into statutory holiday pay calculations.
  • A worker’s entitlement to holiday pay will continue to accrue during sick leave.
  • There are different rules for calculating holiday pay depending on the working patterns involved.
  • Workers must take their statutory paid annual leave allowance and can only be ‘paid in lieu‘ for this when their employment ends.

Guaranteed overtime

Guaranteed overtime is where the employer is obliged by the contract to offer and pay for agreed overtime. Following a judgment in 2004, guaranteed overtime must be included within the calculation of holiday pay.

Non-guaranteed overtime

Non-guaranteed overtime is where there is no obligation by the employer to offer overtime but if they do then the worker is obliged by the contract to work overtime. On 4th November 2014 the Employment Appeal Tribunal made a ruling in the case of Bear Scotland v Fulton which covers how holiday pay should be calculated when non-guaranteed overtime is worked.

The judgment has clarified that:

  • Workers should have their normal non-guaranteed overtime taken into account when they are being paid annual leave.
  • Anybody making a claim must have had an underpayment for holiday pay that has taken place within three months of lodging an employment tribunal claim.
  • If a claim involves a series of underpayments, any claims for the earlier underpayments will fail if there has been a break of more than three months between those underpayments.
  • Only the 4 weeks’ annual leave entitlement under the original Working Time Directive are covered by this judgment, rather than the full 5.6 weeks’ leave provided by the Regulations as they operate in Great Britain.

This judgment may have an impact in situations where non-guaranteed overtime is carried out by workers on a regular or consistent basis.

It is unlikely to have an impact in situations where non-guaranteed overtime is either already factored into holiday pay, or possibly where this overtime is only used on genuinely one-off occasions.

Employers, workers and trade unions are encouraged to discuss any concerns arising from this judgment with a view to seeking agreement on any measures or policy changes they feel may be necessary. Acas may be able to help parties find solutions and employers or workforce representatives may find it helpful to discuss the issue with an Acas Collective Conciliator.

Limit on a claim for an underpayment

On Thursday 18 December 2014 the Government announced a planned change to the Employment Rights Act 1996 in relation to claims for deduction of wages. The change will mean that when making claims for a series of backdated deductions from wages, including any shortfall in holiday pay, the period that the claim can cover will be limited to a maximum of 2 years.

It is expected that the effect of this change will be to limit the scope for a claim for deductions from pay going back more than 2 years for any claim presented on or after 1 July 2015.

Voluntary Overtime

Voluntary overtime is where the employer asks the worker to work overtime and the worker is free to turn down the request as there is no contractual obligation on either side to offer or refuse overtime. The question of voluntary overtime has not been directly considered by any recent judgments, so there is currently no definitive case law to suggest that voluntary overtime needs to be taken into account when calculating holiday pay.


Commission is usually an amount of money a worker receives as a result of making sales and can make up some or all of their earnings.

Commission must be factored into holiday payments for the 4 weeks of statutory annual leave required under European law. There is no requirement to do this for the additional 1.6 weeks of statutory annual leave provided under UK law, or for any additional contractual annual leave allowance. This was confirmed on 22 May 2014 when the European Court of Justice heard the case of Lock v British Gas Trading Ltd.

At present, there is no definitive legal answer about how such holiday pay calculations must be made, or how/if claims can be backdated.

The Lock v British Gas Trading Ltd case has been referred back to the UK to consider how commission is calculated into holiday pay for that particular case. While part of the case was heard at the Employment Tribunal on 5 February 2015, the final judgment has not yet been made. When the judgment is made, it is important to note that an Employment Tribunal judgment is not binding on any other case – it would need to be appealed to the Employment Appeal Tribunal to have such an effect.

Work-related travel

Work-related travel can have a number of different meanings but for most employment matters, this will usually mean any travel that is made for work purposes that is not a part of a workers commute to their usual place of work. On 4 November 2014 the Employment Appeal Tribunal issued a judgment in a case joined to Bear Scotland v Fulton which covers how holiday pay should be calculated in relation to work-related travel.

Where payments are made for time spent travelling to and from work as part of a worker’s normal pay, these may need to be considered when calculating holiday pay.

Holiday pay and sickness

When a worker takes paid or unpaid sick leave, their annual leave will continue to accrue. If a worker is unable to take their annual leave in their current leave year because of sickness, they should be allowed to carry that annual leave over until they are able to take it, or they may choose to specify a period where they are sick but still wish to be paid annual leave at their usual annual leave rate.

Calculating holiday pay for different working patterns

No matter the working pattern, a worker should still receive holiday pay based on a ‘week’s normal remuneration’. This usually means their weekly wage but may include allowances or similar payments. Some of these payments might include the situations described earlier on this page, such as commission.

  • For workers with fixed working hours – If a worker’s working hours do not vary, holiday pay would be a week’s normal remuneration.
  • For workers with no normal working hours – If a worker has no normal working hours then their holiday pay would still be a week’s normal remuneration but the week’s pay is usually calculated by working out the average pay received over the previous 12 weeks in which they were paid.
  • For shift workers – If a worker works shifts then a week’s holiday pay is usually calculated by working out the average number of hours worked in the previous 12 weeks at their average hourly rate.

Payment in lieu of holidays

While workers are in employment, 5.6 weeks of their annual leave (this is the amount all UK workers are statutorily entitled to) must be taken and cannot be ‘paid off’. Anything above the statutory allowance may be paid in lieu but this would depend on the terms of the contract.

When a worker’s employment is terminated, all outstanding holiday pay that has been accrued but not taken (including the statutory allowance) must be paid.

Further Information

Until further clarification is available, employers may wish to seek legal advice based on their individual circumstances.

Holiday Pay Should Include Commission

Update 14/05/2015:

This case has now been referred back to the Employment Tribunal and British Gas has now appealed that again. It is unlikely to be before the end of 2015 when that appeal is heard. The Employment Tribunal it did not consider reference periods and how to quantify a claim for the commission element of holiday pay. The principle that commission must be included in holiday pay is established law now, the still open questions is how to quantify it.

Our best advise at the moment is that in cases where a worker has no normal working hours, or has normal working hours but their pay varies according to amount of work done or the time of work employers should use an average of the last 12 working weeks to calculate how much holiday pay should be paid. If your ways of working mean that 12 weeks would not be representative, such an a system where all commission is paid annually, then 12 weeks may not be the appropriate reference period. In any case we advise all employers to take legal advice on this as soon as possible. Fox Whitfield are already dealing with multiple claims where employers have not changed their policies and are facing claims.

Paul can be contacted on 0161 2831276 or

Employment Law Solicitors – Head Office based in Manchester with offices located throughout the United Kingdom.

In a new twist on the law relating to holiday rights the European Court of Justice (ECJ) has held that holiday pay should take into account commission payments.

Currently the UK law, the Working Time Regulations, make it clear that employees are entitled to holiday pay based on their basic salary alone. This case suggests that is now incorrect as it is not compatible with European Law.

In this example an employee’s remuneration was made up of basic salary and commission. The commission was about 60% of the total remuneration. The ECJ said that the commission payments were directly linked to the performance of his work under his contract of employment. Therefore, the commission should be taken into account in the calculation of his statutory holiday pay.

This case is now being referred back to the Employment Tribunal which will need to consider how to interpret the Working Time Regulations following this decision. It is likely that they will do so in a way that will have far reaching implications for many businesses and their employees.

One possibility is that the Tribunal will say that statutory holiday pay should be based upon 12 month average normal pay. That would ensure that any commission payments paid over a year would be included. Another possibility is that they will use a shorter reference period of 12 weeks. This could mean sales forces trying to take their holidays immediately after busy periods to maximise their holiday pay. We shall have to wait and see how the details of this develop.

There are two other cases being heard in the EAT during the summer of 2014 looking at the extent to which overtime payments should also be included in the calculation of statutory holiday pay.

So what should employers do now?

1) Do nothing. Wait and see how these cases develop the law as they take their time going though the Tribunal and appeal systems. It may be that the UK courts limit the effect of the ECJ  decision.

2) Assume the UK law is going to have to change to comply with the European decisions.  Take the business decision to look at changing your holiday pay and commission rules and policies now. The risk of this is that we have yet to see how the UK courts will apply the law and you could end up having to change your rules twice.

So far, most employers seem to be waiting to see what happens next before making any changes.

We will update you as things become clearer, or more muddy.


Paul can be contacted on 0161 2831276 or

Employment Law Solicitors – Head Office based in Manchester with offices located throughout the United Kingdom.

World Cup Employee Issues

Between 12 June and 13 July 2014 employers will face a number of issues relating to the World Cup games from requests for annual leave, to suspicious sickness absences and high levels of internet usage during matches.

As this World Cup is being held in Brazil most matches will kick off between 5:00pm and 11:00pm.

ACAS have published some guidance to employers. This urges employers to be as flexible as possible for this period of time to try and maintain a productive and motivated workforce. They suggest that, in advance of the World Cup or other similar events, that the employers make their position clear about issues such as booking time off, watching TV at work, sickness absences and internet usage.

Employers should consider :-

Annual Leave Requests

Employers should have a policy that states how much notice is needed to book annual leave and that requests are always subject to the employer’s agreement. This should prevent too many employees asking for the same time off or doing so at the last minute. ACAS suggests that employers might want to operate this policy with more flexibility during the World Cup as it is for a short period of time. However that is entirely down to the business and its requirements for employees work.

Given the likely kick off times in this World Cup most games will be in the later afternoon and evening so it might be more sensible to offer a more flexible working day if a large number of employees want to take the same days off.

Sickness Absence

Employees taking days off sick to watch a match or the day after a match due to a hangover can cause serious problems for an employer. Employees should be reminded of the company policy on unauthorised absences and absence levels should be carefully monitored during periods like this. Back to work meetings with any employees taking sick leave can be an effective deterrent to this sort of absence.

Alcohol at Work

It is useful to remind your employees what your policy on being under the influence of alcohol at work is and if necessary remind employees that they may be subjected to disciplinary action.

If you plan to show matches in the workplace and prove or permit alcohol to be consumed it is also worth having a clear policy about the expected level of behaviour. Fox Whitfield can provide employers with these sorts of policies.

Internet Usage

Games that take place during working hours are very likely to coincide with a big increase in the use of twitter, facebook and sites streaming matches and commentary. Again it will be worth reminding employees about your policy on the use of the internet during working.

Paul Whitfield can be contacted on 0161 2831276 or

Employment Law Solicitors – Head Office based in Manchester with offices located throughout the United Kingdom.



Staff Holiday Entitlement

Time Off Work and Staff Holiday Entitlement

staff holiday entitlement Staff Holiday EntitlementPaul Whitfield, one of our top employment lawyers in Manchester looks at some common issues around staff holiday entitlement and time off work.

An employee claims he was ill for a week of a 2 week holiday. He wants me to pay him sick pay for a week and let him take the second week of his holiday another time.

Recent case law indicates that employees that become ill during a period of statutory holiday may choose to take that time as sick leave rather than holiday. However, they would be required to comply with the normal company sick leave policy which would normally require them to tell their employer the day they are ill.  Employers should ensure their holiday pay and sick leave polices deal with this.

We told employees stranded by the volcanic ash cloud that their additional days absence would be paid and treated as holiday. An employee who had to use all his holidays now wants to challenge that.

If it was made clear to the employee that the absence would be treated as part of their staff holiday entitlement at the time and they agreed to this it is hard to see how they could challenge it. Had you not treated the absence as holiday the employee would not have been entitled to be paid for those days. Subject to the business requirements you could offer him some unpaid leave.

If an employee is absent for a large amount of the holiday year and so can’t take holidays, do we have to carry those days forward into the next holiday year?

Yes, if an employee can’t take statutory holiday as they are absent on maternity or sick leave they should be permitted to carry those days holiday into the next holiday year. In many cases this can be tagged onto the start or end of maternity leave. It may be possible to limit this to statutory holidays in your contract of employment if your employees get more than the statutory minimum. Employees also have the right during sick leave to take days as holiday and to receive holiday pay for those days, even if they have exhausted their right to sick pay.

If someone fails to take their staff holiday entitlement in one year can they carry it forward to the next year?

Unless the contract of employment says otherwise the untaken holiday would be lost in most cases. Only if the employee is unable to take the holiday due to absence would the employer be required to permit the holiday to be carried forward. It is wise to have this covered in the contract of employment or holiday policy.

Paul Whitfield can be contacted on 0161 283 1276 or click here