Review of Employment Practices in the Modern Economy: Matthew Taylor attendance in Belfast.

Review of Employment Practices in the Modern Economy: Matthew Taylor attendance in Belfast.

On Tuesday 14 March 2017 the Association attended a local panel discussion chaired by Matthew Taylor, Chief Executive of the Royal Society of Arts, who has been selected by the Prime Minister to lead an Independent Review of Employment Practices in the Modern Economy.

The scope of the Review is to consider how employment practices need to change to keep pace with modern business models.  This is a topic that we will be discussing in further detail at the EEF’s Annual Conference on Wednesday, 7 June 2017.

The Review proposes to address 6 key themes:

  1. Security, pay and rights
  • To what extent do emerging business practices put pressure on the trade-off between flexible labour and benefits such as higher pay or greater work availability, so that workers lose out on all dimensions?
  • To what extent does the growth in non-standard forms of employment undermine the reach of policies like the National Living Wage, maternity and paternity rights, pensions auto-enrolment, sick pay, and holiday pay?
  1. Progression and training
  • How can we facilitate and encourage professional development within the modern economy to the benefit of both employers and employees?
  1. The balance of rights and responsibilities
  • Do current definitions of employment status need to be updated to reflect new forms of working created by emerging business models, such as on-demand platforms?
  1. Representation
  • Could we learn lessons from alternative forms of representation around the world?
  1. Opportunities for under-represented groups
  • How can we harness modern employment to create opportunities for groups currently underrepresented in the labour market (the elderly, those with disabilities or caring responsibilities)?
  1. New business models
  • How can government – nationally or locally – support a diverse ecology of business models enhancing the choices available to investors, consumers and workers?

At the discussion in Belfast Mr Taylor described his work as covering 3 key themes:

  1. Exploitation: How to tackle it, why it occurs and what we can do about it;
  1. Obtaining clarity on the law, especially around tax and employment status, for example whether a person is an employee, worker or self-employed. Mr Taylor noted that whilst UK tax laws extend to Northern Ireland, this is not the case with employment law which is a devolved matter for the NI Assembly.  It will therefore be a matter for the Assembly to decide whether it wishes to act on the recommendations in his final report;
  1. Considering incentives, how they drive forms of behaviour and what can be done to align incentives to proper behaviour.

The intention is to pursue these 3 central themes without damaging job creation and flexibility whilst also encouraging the development of quality work.

The Belfast panel of 4 was made of up of representatives from: The Citizens Advice Bureau; Uber (accompanied by 2 Uber drivers working in a gig economy model); and the Irish Congress of Trade Union, together with a Chair of Academic Freelancers.

Whilst it was disappointing that the discussion focused on the traditional forms of employee, worker and self-employed and did not explore the huge range of atypical working arrangements that we see in modern businesses, nonetheless it became clear through the discussion that there are a number of complex issues to explore:

  • Statistics provided reveal that 15% of the workforce in Northern Ireland are self-employed with approximately 52% of those reporting that they feel very insecure in their work;
  • Other commentators suggested that whilst 75% of the self-employed are happy with their self-employment status, 25% would prefer to be doing something else;
  • Many like the flexibility, and advantages of direct pay, that comes with being self-employed, and in return are happy to accept the lessening of rights such as holiday pay and National Minimum Wage. It is difficult to see how it will be possible to increase rights without sacrificing some of this flexibility.  Additionally, as the economy in Northern Ireland is predominantly SME based, it may mean a different solution is appropriate here;
  • Without doubt one of the biggest challenges in Northern Ireland will be skills shortages and how to ensure we have sufficient appropriately trained persons to take up the rolling range of jobs available in our economy; this coupled with Brexit may make the outlook for the economy more uncertain.

The discussion ended with Mr Taylor emphasising that he wants to encourage a shift in thinking about how we work.  His parting words were that if we want to work, whether in a modern or traditional fashion, then jobs must be fair and decent and have the scope to enable people to develop and be fulfilled in their work.  This certainly is an ideal that we would all like to see in the workplace but we must wait to see how he proposes to achieve that.  Indeed, in Northern Ireland we will have to wait to see if the Assembly, if one emerges from the latest election, puts this on their agenda as an important issue for the Department of the Economy.

Karen Moore will be speaking about this topic at our Annual Conference.  Anyone wishing to attend should contact John Gibson at john@eefni.org

Holidays & Holiday Pay Workshop

WORKSHOP:  Holidays & Holiday Pay – All you need to know
DATE:      Tuesday 6 December 2016
TIME:      10.00am-12.00pm
LOCATION:    EEF Northern Ireland Offices
COST:      £75 plus VAT Members; £100 plus VAT Non-Members

In light of the developing case law in respect of holidays and holiday pay, we are holding a practical based workshop on 6 December 2016 to consider the complexities of calculating holiday pay to include commission payments, bonus and overtime as well as the impact of sickness absence on holidays.

The workshop will:

  • Review the main legal changes affecting the calculation of holiday pay, including what should be included in the calculation and how to address the interaction between sickness and holidays
  • Consider the risk areas for employers in respect of potential holiday pay claims
  • Discuss what steps employers can take to minimise the risk of exposure to successful claims
  • Address the operational challenges faced by employers in complying with their legal obligations

To help ensure we address Members’ questions on a practical level, we would invite you to submit any specific queries you have to us by email in advance to kathryn@eefni.org. Confidentiality regarding the identity of any Member who has submitted a query will be maintained.

If you wish to attend please complete the booking form below or contact John Gibson on 02890595053.

Booking Form

Holiday Pay & Commission

In February 2016 the EAT delivered its eagerly awaited decision in Lock v British Gas Trading Limited, confirming that commission should be included in holiday pay.

Background

Since late 2014 there have been a number of key Decisions handed down addressing the correct approach to the calculation of holiday pay, most significantly:

In November 2014 the Employment Appeal Tribunal (EAT) in Great Britain ruled, in the case of Bear Scotland v Fulton, that the calculation of Working Time Directive holiday should include non-guaranteed overtime;

In addition to this the ECJ in Lock v British Gas considered the correct approach to the calculation of holiday pay where a worker’s remuneration consists of basic salary plus commission.

Lock v British Gas

Mr Lock was employed by British Gas as a salesman. As well as his basic salary, he was entitled to receive commission based on sales which amounted to approximately 60% of his total earnings. The case centered on whether commission payments should be included in the calculation of his holiday pay.

The ECJ stated that:

Following the ECJ Decision the case returned to the Tribunal which concluded the UK Working Time Regulations (WTR) could be interpreted to give effect to the ECJ Decision; wording would be added to the Regulations to this effect.

British Gas appealed, arguing that the Tribunal was wrong to conclude that the WTR could be interpreted in accordance with the ECJ decision. British Gas argued that the decision in Bear Scotland v Fulton was distinguishable as it related to overtime payments and not commission, and also argued that it was incorrectly decided and not binding upon the EAT. The EAT rejected these arguments.

What next for employers?

It is clear that UK law requires commission to be included in holiday pay, however there are still a number of unanswered questions, most notably what the appropriate reference period should be for calculating the holiday pay of workers who earn commission.

It is likely that a further Tribunal hearing will be required to determine the compensation due to Mr Lock by British Gas, which may provide some guidance on the appropriate length of reference period.

Whilst this guidance will be welcome, employers are reminded that as this guidance will be from a Tribunal it will not be binding. There is also the possibility that British Gas will seek leave to appeal the EAT Decision and thereby create a further period of uncertainty around whether commission payments should be included in the calculation of holiday pay. Even if there is such an appeal, the view of EEF Northern Ireland is that ultimately the settled position is likely to be that commission payments should be included in the calculation of holiday pay.

Overtime & Holiday Pay

In November 2014 the Employment Appeals Tribunal (EAT) in England delivered a landmark Decision in the co-joined appeals Bear Scotland Ltd v Fulton and Baxter, Hertel (UK) Ltd v Wood and others and Amec Group Limited v Law and others. The EAT ruled that “non-guaranteed” overtime should be included when calculating statutory holiday pay but limited the extent to which workers can make claims for historical underpaid holiday.

Background

In Northern Ireland all workers are entitled to 5.6 weeks holiday under the Working Time Regulations (NI) 1998, as amended (WTR.) This is made up of 4 weeks (or 20 days) holiday derived from the European Working Time Directive (WTD) and a further 1.6 weeks (or 8 days) holiday enhanced by national law.

Workers are entitled to be paid at a rate of a week’s pay for each week of leave. When assessing a “week’s pay” the Employment Rights Order (NI) 1996 distinguishes between:

Importantly, this Decision of the EAT, the case law to date had stated that non-guaranteed/non-compulsory overtime was not included in the calculation of a week’s pay.

Decisions from the CJEU over the past few years have continued to change the legal landscape regarding holiday entitlement and pay. The CJEU judgments in the cases of Williams v British Airways and Lock v British Gas held that workers are entitled to receive their “normal remuneration” during periods of annual leave. In Williams the Court held that in addition to basic salary, a worker is also entitled to receive any remuneration “intrinsically linked to the performance of the tasks which he is required to carry out under his contract.” In Lock the Court held that normal remuneration also includes commission payments that were determined by reference to sales achieved.

In the Bear Scotland decision, the EAT considered what constitutes “normal remuneration” and ruled that it must include non-guaranteed or compulsory overtime which a worker is required to work but an employer is not required to offer. This is considered in further detail below:

Summary of the Decision

In Bear Scotland, the employees’ contracts detailed their normal hours of work. However, their actual working hours varied from week to week as they could be required to work overtime they could not unreasonably refuse. In addition, the employees regularly worked night shifts, for which they were paid a higher rate. They also received standby payments at a flat rate for being on standby and emergency call out payments if they were called out whilst on standby. The employees were paid holiday pay at the basic rate of pay for their contracted hours only. No premium was included for night shift, standby, or overtime.

In the Hertel & Amec cases, the employees’ contracts stated they were employed on a basic working week of 38 hours. Any hours worked in excess of 38 hours were counted as overtime and attracted a higher rate of pay. Employees were obliged to work shifts and overtime as required; in practice the shift patterns meant the working week was around 44 hours. Employees received a fixed individual “productivity” allowance that was paid for all hours, and monthly payments based on team performance. When travelling to site more than 8 miles away, the employees received both a radius allowance for travelling time and fares, and a travelling time payment.

The employees were paid holiday pay according to the basic 38 hour week at the relevant shift allowance rate which included the individual productivity allowance and monthly team performance payment.

Issues decided by the EAT

  1. The EAT ruled that non-guaranteed overtime and other supplemental payments that are intrinsically linked to the performance of the tasks must be included in holiday pay calculations. In other words, “normal pay” is pay that is normally received, and the pay must have an intrinsic or direct link to the work the worker is required to carry out. In applying these principles, the EAT held that the radius and travelling time allowances (applicable to the Amec & Hertel employees) are part of normal remuneration as these are payment for time spent travelling to various sites;
  2. However, the EAT Decision applies only to holiday pay in respect of WTD annual leave (i.e. 20 days.) Therefore the 8 days of additional leave under the WTR does not have to include these amounts;
  3. Significantly, claims for historical holiday pay are expected to be limited as the EAT found that an underpayment in respect of holiday pay which is separated from the next such underpayment by a period of more than 3 months, will be out of time for a claim to be brought.

What this means in practice

  1. Holiday pay should be equivalent to a worker’s “normal pay.” In cases where the pattern of work is settled it will be easy to establish what normal pay includes. In others, Employers will need to consider whether the payment in question has been made for a sufficient period of time to justify that label. We are of the view a Tribunal will take into account the regularity and pattern of payments when assessing what payments should be included as part of “normal pay”;
  2. The types of overtime pay that must be factored into holiday pay include:
    • Overtime which is compulsory for the worker and is regularly required;
    • Overtime which cannot be unreasonably refused and is regularly required;
  3. The EAT did not deal with purely voluntary overtime (overtime the employer is not obliged to offer and the worker is not obliged to accept), however initial reactions to the Decision are generally of the view the following is likely to be applied:
    • Overtime which is voluntary but worked regularly may fall within the scope of “normal pay” and should therefore be factored into holiday pay;
    • Overtime which is voluntary, occasional and irregular may be out of scope on the basis it would fail the “normal” test
  4. It is not clear whether the Decision endorses the 12 week reference period to calculate holiday pay; we foresee issues arising where the 12 week period is not representative of normal working and pay, particularly where a worker’s pay is highly variable throughout the year;
  5. The findings apply to WTD annual leave (i.e. 20 days) only and not to the additional 8 days provided under the WTR. The likely effect of this is that workers will receive a higher rate of holiday pay (that includes overtime and various other applicable payments) for 20 out of their 28 days’ holiday per year, with the remaining 8 days being paid at basic rate. In practice this has the potential to give rise to payroll complications;
  6. What is potentially helpful is that the EAT Decision includes an opinion (which is not binding) that these 8 additional days are the last 8 days to be agreed upon by the employer and the worker in that year. Workers cannot choose which leave is covered by the WTD with a view to attracting a higher rate of pay;
  7. This may also have the effect of limiting claims for historical holiday pay. The EAT concluded that workers could not claim any holiday underpayment forms part of a series of deductions from wages (i.e. an unlawful deduction from wages claim) where more than 3 months has elapsed between the deductions. This could be a 3 month period where the worker took no holidays, or a 3 month period which includes holiday payments for WTR or contractual leave (but not WTD leave.) This part of the Decision severely restricts the scope of backdated claims as the likelihood of a worker having a long series of untaken WTD holiday over a number of years that has not been separated by a further period of WTR leave, is minimal.
Important Ruling on Calculating Holiday Pay

This week the Employment Appeals Tribunal (EAT) in England delivered a landmark Decision in the co-joined appeals Bear Scotland Ltd v Fulton and Baxter, Hertel (UK) Ltd v Wood and others and Amec Group Limited v Law and others. The EAT ruled that “non-guaranteed” overtime should be included when calculating statutory holiday pay but limited the extent to which workers can make claims for historical underpaid holiday. This article summaries the law and considers the impact of this Decision on our Members.

Background

In Northern Ireland all workers are entitled to 5.6 weeks holiday under the Working Time Regulations (NI) 1998, as amended (WTR.) This is made up of 4 weeks (or 20 days) holiday derived from the European Working Time Directive (WTD) and a further 1.6 weeks (or 8 days) holiday enhanced by national law.

Workers are entitled to be paid at a rate of a week’s pay for each week of leave. When assessing a “week’s pay” the Employment Rights Order (NI) 1996 distinguishes between:

Importantly, prior to this week’s Decision of the EAT, the case law to date had stated that non-guaranteed/non-compulsory overtime was not included in the calculation of a week’s pay.

Decisions from the CJEU over the past few years have continued to change the legal landscape regarding holiday entitlement and pay. The CJEU judgments in the cases of Williams v British Airways and Lock v British Gas held that workers are entitled to receive their “normal remuneration” during periods of annual leave. In Williams the Court held that in addition to basic salary, a worker is also entitled to receive any remuneration “intrinsically linked to the performance of the tasks which he is required to carry out under his contract.” In Lock the Court held that normal remuneration also includes commission payments that were determined by reference to sales achieved.

In the Bear Scotland & others Decision the EAT considered what constitutes “normal remuneration” and ruled that it must include non-guaranteed or compulsory overtime which a worker is required to work but an employer is not required to offer. This is considered in further detail below:

Summary of the Decision

In Bear Scotland, the employees’ contracts detailed their normal hours of work. However, their actual working hours varied from week to week as they could be required to work overtime they could not unreasonably refuse. In addition, the employees regularly worked night shifts, for which they were paid a higher rate. They also received standby payments at a flat rate for being on standby and emergency call out payments if they were called out whilst on standby. The employees were paid holiday pay at the basic rate of pay for their contracted hours only. No premium was included for night shift, standby, or overtime.

In the Hertel & Amec cases, the employees’ contracts stated they were employed on a basic working week of 38 hours. Any hours worked in excess of 38 hours were counted as overtime and attracted a higher rate of pay. Employees were obliged to work shifts and overtime as required; in practice the shift patterns meant the working week was around 44 hours. Employees received a fixed individual “productivity” allowance that was paid for all hours, and monthly payments based on team performance. When travelling to site more than 8 miles away, the employees received both a radius allowance for travelling time and fares, and a travelling time payment.

The employees were paid holiday pay according to the basic 38 hour week at the relevant shift allowance rate which included the individual productivity allowance and monthly team performance payment.

Issues decided by the EAT

  1. The EAT ruled that non-guaranteed overtime and other supplemental payments that are intrinsically linked to the performance of the tasks must be included in holiday pay calculations. In other words, “normal pay” is pay that is normally received, and the pay must have an intrinsic or direct link to the work the worker is required to carry out. In applying these principles, the EAT held that the radius and travelling time allowances (applicable to the Amec & Hertel employees) are part of normal remuneration as these are payment for time spent travelling to various sites;
  2. However, the EAT Decision applies only to holiday pay in respect of WTD annual leave (i.e. 20 days.) Therefore the 8 days of additional leave under the WTR does not have to include these amounts;
  3. Significantly, claims for historical holiday pay are expected to be limited as the EAT found that an underpayment in respect of holiday pay which is separated from the next such underpayment by a period of more than 3 months, will be out of time for a claim to be brought.

What this means in practice

  1. Holiday pay should be equivalent to a worker’s “normal pay.” In cases where the pattern of work is settled it will be easy to establish what normal pay includes. In others, Members will need to consider whether the payment in question has been made for a sufficient period of time to justify that label. We are of the view a Tribunal will take into account the regularity and pattern of payments when assessing what payments should be included as part of “normal pay”;
  2. The types of overtime pay that must be factored into holiday pay include:- Overtime which is compulsory for the worker and is regularly required;
    – Overtime which cannot be unreasonably refused and is regularly required;
  3. The EAT did not deal with purely voluntary overtime (overtime the employer is not obliged to offer and the worker is not obliged to accept), however initial reactions to the Decision are generally of the view the following is likely to be applied:- Overtime which is voluntary but worked regularly may fall within the scope of “normal pay” and should therefore be factored into holiday pay;
    – Overtime which is voluntary, occasional and irregular may be out of scope on the basis it would fail the “normal” test
  4. It is not clear whether the Decision endorses the 12 week reference period to calculate holiday pay; we foresee issues arising where the 12 week period is not representative of normal working and pay, particularly where a worker’s pay is highly variable throughout the year;
  5. The findings apply to WTD annual leave (i.e. 20 days) only and not to the additional 8 days provided under the WTR. The likely effect of this is that workers will receive a higher rate of holiday pay (that includes overtime and various other applicable payments) for 20 out of their 28 days’ holiday per year, with the remaining 8 days being paid at basic rate. In practice this has the potential to give rise to payroll complications;
  6. What is potentially helpful is that the EAT Decision includes an opinion (which is not binding) that these 8 additional days are the last 8 days to be agreed upon by the employer and the worker in that year. Workers cannot choose which leave is covered by the WTD with a view to attracting a higher rate of pay;
  7. This may also have the effect of limiting claims for historical holiday pay. The EAT concluded that workers could not claim any holiday underpayment forms part of a series of deductions from wages (i.e. an unlawful deduction from wages claim) where more than 3 months has elapsed between the deductions. This could be a 3 month period where the worker took no holidays, or a 3 month period which includes holiday payments for WTR or contractual leave (but not WTD leave.) This part of the Decision severely restricts the scope of backdated claims as the likelihood of a worker having a long series of untaken WTD holiday over a number of years that has not been separated by a further period of WTR leave, is minimal.

What happens next?

Leave to appeal on all issues has been granted to the Court of Appeal. However, the EAT Judge has indicated any appeal on the issue of including non-guaranteed overtime in the calculation of holiday pay is unlikely to be successful, but that the prospect of success on the time point is more difficult to call.

The Secretary of State for Business, Innovation and Skills, Vince Cable has announced the Government is putting together a task force to look at ways to limit the impact of the Decision. Whilst employment law is a devolved matter in Northern Ireland, the trend is that we align ourselves with GB in any matters where there has been an interpretation of European law. Consequently, we anticipate Northern Ireland will adopt the same approach as GB.

Case Law Update: Holiday Pay Calculation

It is well-established law that workers on holiday must be paid at a rate of a week’s pay for each week of their statutory holiday entitlement. A very recent case before the European Court of Justice (ECJ) Lock -v- British Gas Trading Limited considered whether a worker’s pay should include commission. The worker in question was a sales person whose pay consisted of both basic pay and commission. His pay varied from month to month and on average he made up 60% of his total pay on commission. The employee was paid in arrears and suffered financial loss in the months following a period of holiday due to his inability to earn commission while on holiday.

The ECJ ruled that pay must include commission for workers who ordinarily receive same. The ECJ said that the purpose of holiday pay is to put the worker in the position they would have been, had they been at work and this should include pay which is “linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment”.

On the point of how commission is to be calculated the ECJ stated that the method of calculation should be determined by national law.

We are awaiting another important decision later this year on whether overtime should also be factored into holiday pay. We will update Members when this decision is issued.

At the EEF Annual Review Conference being held on 11 June 2014 we will be looking at the practical implications for employers of this recent ECJ judgment and also how Members can best manage holidays and sickness absence in light of current case law.

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