Make sure you are calculating holiday pay right

Workers should usually receive the same rate of pay whilst on annual leave, as what they would when they are working, but it may not be as simple to calculate an employee’s holiday pay as you think.

Previously you only had to calculate an employee’s holiday pay using their basic pay, you didn’t have to consider any commission or overtime. In the case of Williams v British Airways it was stated that ‘normal remuneration’ was to be used to calculate employee’s holiday pay, this included any payment in relation to the performance of contractual duties.

Later cases confirmed that much more actually needed to be considered when determining holiday pay. Commission, work related mileage, voluntary overtime, out of hours, on call and shift allowances all need to be considered when calculating. The calculations do not need to include any expenses or travel costs for accommodation.

Employees are entitled to 20 days’ paid holiday by EU law and 8 extra days from UK law. The rules on calculating pay do not apply to the whole of the employee’s entitlement, they apply only to the first 20 days of any annual leave.

Unfortunately for employers, employees can claim for previously underpaid holiday pay going back two years. Make sure you calculate holiday pay correctly to avoid incurring further financial liability and potential claims.

If you need any advice regarding holiday pay, get in touch with us 0115 870 0150 or email us at hello@yourhrlawyer.co.uk.