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

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.

http://t.co/79FgHY91xd

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 paulw@foxwhitfild.com

www.foxwhitfield.com

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 paulw@foxwhitfild.com

www.foxwhitfield.com

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

“Government crackdown on zero hours contract abusers”

Vince Cable announced on 25 June 2014 that the government was cracking down on the abuse of zero hours contracts. The key measure they plan to take is to ban exclusivity clauses. These clauses mean that an employee on a zero hours contract is prevented from working for another employer even if their current employer is not providing them with any work.

As BIS put it: “The use of exclusivity clauses in zero hours contracts undermines choice and flexibility for the individuals concerned.” They claim this will help about 125,000 employees.

However, as a zero hours contract gives the employer the right not to provide the employee with any work employers will be free to refuse to provide work to employees who do find other work elsewhere. It will be difficult for an employee to prove they stopped being given work for this reason, so this ban may well have zero impact.

This action follows a government consultation into zero hours contracts which received over 36,000 responses. 83% were in favour of banning exclusivity clauses in zero hours contacts.

The Business Secretary also announced that the government will:

• consult further on how to prevent rogue employers evading the exclusivity ban, for example through offering 1 hour fixed contracts
• work with business representatives and unions to develop a code of practice on the fair use of zero hours contracts by the end of the year (2014)
• work with stakeholders to review existing guidance and improve information available to employees and employers on using these contracts

Tim Thomas, Head of Employment Policy at EEF, the manufacturers’ organisation, said:

Zero hours contracts occupy an important space in the labour market where, properly used, they provide flexible employment in job roles where open-ended contracts are unsuitable.

For manufacturers where skills are in scarce supply, zero hours contracts can help employers to tap into specialist skills when they are needed, such as drawing on the experience of older workers.

The way forward set out in the Small Business, Enterprise and Employment Bill treads a fine line between supporting the majority of workers who want to continue to work on their zero hours contracts and limiting their use where they are neither necessary nor appropriate.

The ban will be part of the Small Business, Enterprise and Employment Bill, which is being introduced to Parliament today (25 June 2014)

Paul Whitfield can be contacted on 0161 2831276 or paulw@foxwhitfild.com

www.foxwhitfield.com

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

Government Names and Shames Employers that failed to pay Minimum Wage

On 8 June 2014 the government named 25 employers who had failed to pay their employees the National Minimum Wage.

Under new rules from October 2013 the government can now publish the names of employers who have been found not to have paid their employees the National Minimum Wage.

Business Minister Jenny Willott said:

“Paying less than the minimum wage is not only wrong, it’s illegal. If employers break the law they need to know that they will face tough consequences.

“Any worker who is entitled to the minimum wage should receive it. If anyone suspects they are not being paid the wage they are legally entitled to they should call the Pay and Work Rights helpline on 0800 917 2368.”

The government plans to bring in new rules in the next parliamentary session so that employers can also be given penalties of up to £20,000 for each individual worker they have underpaid, rather than the maximum penalty applying to each employer. This will mean if an employer underpays 10 workers, they could face penalties of up to £200,000.

Employers must be aware of the current rates for the National Minimum Wage and keep up to date as they change. The government has announced the following rates will come into effect on 1 October 2014:

• a 19p (3%) increase in the adult rate (from £6.31 to £6.50 per hour)
• a 10p (2%) increase in the rate for 18-20 year olds (from £5.03 to £5.13 per hour)
• a 7p (2%) increase in the rate for 16-17 year olds (from £3.72 to £3.79 per hour)
• a 5p (2%) increase in the rate for apprentices (from £2.68 to £2.73 per hour)

There has been criticism about the government’s actions as the 25 businesses that they have named are said to amount to less than 1% of the problem. Apparently HMRC say that over £4.6 million is owed in arrears to people paid less than the minimum wage. This includes an unnamed Premier League Football club that owed more than £27,500 to 3000 of its employees.

The Low Pay Commission has said that it believes that there has been a “sharp decline” in compliance with the National Minimum Wage in the past two years and that the social care sector is one of the worst offenders.

A list of the named business can be found at:

https://www.gov.uk/government/news/government-names-employers-who-fail-to-pay-minimum-wage

Paul Whitfield can be contacted on 0161 2831276 or paulw@foxwhitfild.com

www.foxwhitfield.com

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

Giving Too Much Notice Meant Employee lost their Constructive Dismissal Claim

A constructive dismissal occurs where the employer does not dismiss the employee, but the employee resigns and can show that they were entitled to do so by virtue of the employer’s conduct.

Employees can resign either with or without notice, what matters is that they have the right to resign without notice because of the employer’s conduct towards them.

Employees need to be able to show three things to win a constructive dismissal claim:

1. A breach of contract by the employer that is sufficiently serious to justify the employee resigning.
2. The employee must resign in response to that breach of contract.
3. The employee must not delay too long in accepting the breach.

Constructive dismissal claims have always been difficult cases for employees to win. The employee has to prove that the employer was in fundamental breach of contract. It is not enough just to show that they were not treated fairly. Even if they can do that the employee could still lose their claim because they delayed leaving employment. Even though an employee is permitted to give notice on resignation, the fact that they feel able to work their notice period may lead a tribunal to find that the claimant had in fact delayed too long.

In the recent case of Cockram v Air Products plc a senior employee with a three month notice period resigned after a grievance he raised was not upheld. He claimed that this amounted to a breach of his contract entitling him to claim constructive dismissal. Because he did not have any other work lined up he gave 7 months notice to his employer. He lost his case because of that. The Employment Tribunal and EAT found that to give 7 months notice was to delay too long in accepting the breach and the case was thrown out.

Paul Whitfield can be contacted on 0161 2831276 or paulw@foxwhitfild.com

www.foxwhitfield.com

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