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The Changes to UK Holiday Pay Entitlement – UK Business

Staffing-Agencies---EmployementWhen an employee of British Gas decided to take the energy giant to a tribunal early this year, he probably never envisaged the can of worms that it would open.

Historically, employees have only received their basic rate of pay based on their contracted hours whilst taking annual leave, but the Lock v British Gas Trading Limited case has highlighted the discrepancies between law in the UK and in the European Union.

In the tribunal it was argued that the employee was disadvantaged because of British Gas’s holiday procedures and their effect on people reliant on commissions and overtime. The employee stated that he was unable to generate sales and therefore earn commission while away from work. This resulted in his income being reduced by around 60 per cent.

After being initially heard at Leicester Employment Tribunal in May, his case was referred to the European Court of Justice (ECJ).

Recently things came to a head when a landmark ruling stated that employers are wrong to only pay their workers their basic salary alone during holidays and that average past earnings should be factored in. The Employment Appeal Tribunal also stated that workers should be able to make backdated claims if they have taken any leave in the past three months.

The ruling was actually based on workers from Hertel, Amec and Bear Scotland, but it appears that the case against British Gas was what set the ball rolling, so to speak.

Sarah-Carr Locke of MayoWynneBaxter foresaw this ruling in a blog published a few weeks ago and now firms face the prospect of having to change the way they offer overtime or pay their employees extra money.

Currently, no decision has been made on commissions as the first ruling applies only to overtime, but people are predicting that a decision will follow shortly, especially after the Lock v British Gas Trading Limited case is completed.

How will this affect companies?

Equals RewardThe British Chamber of Commerce (BCC) and the Federation of Small Businesses have both spoken out against the ruling as they feel it will lump huge expenses on businesses at a time when many of them are still feeling the effects of the recession.

Adam Marshall, BCC director of policy, said expanding the definition of what constitutes as ‘pay’ is “ludicrous” and that no company should be forced into paying more than a basic salary while the employee is away from work.

His argument is that the companies themselves do not benefit from the staff member’s absence so why should they pay out for additional work that is not actually being completed.

The Confederation of British Industry Scotland also stated that the ruling has the potential to put smaller firms out of business and will be an “HR nightmare” for national and international companies.

However, the simple truth is that the effect on firms is yet to be realised. The ruling has restrictions (particularly the three month rule for back claims) that will significantly reduce its impact so things may not be as severe as initially thought. The onus is also on the employee to prove that the overtime they do is an essential part of their role.

The first course of action for all employees now should be to review all holidays taken by staff in the past three months to assess whether additional payments are applicable. It is also advisable to discuss the changes with employees so that they are aware of how the ruling affects them.

What about employees?

If you regularly top up your income with overtime, then the ruling is good news. Unions have long argued that people on low pay rely on extra hours to live comfortably and being paid an average sum while holidaying is only fair.

Those of you that fall into the three months category are able to talk to your union representative about claiming the extra money owed. Alternatively, ACAS can help or you can seek legal advice from a solicitor dealing in employment law.

Further test cases are set to be heard in the 12 months ahead and a decision on commission is likely to be made. The difficulty, it seems, will be proving that overtime and commission are essential parts of the role and not mere bonuses to already generous salary packages. This can of worms is only partially open so it seems that many interesting developments lay ahead.