Holidays & Holiday Pay Workshop

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

UK votes to leave the EU – What happens now?

On 24 June 2016, the EU referendum result was announced, with a majority of voters deciding that the UK should leave the EU. Once the government notifies the European Council that the UK has decided to leave the EU, the two-year period for the negotiation for exit under Article 50 of the Treaty of the European Union can start.

No European Union Member State has ever left the EU so the process of withdrawal is untested, and until the shape of the UK’s exit has been determined, the direct legal implications for UK businesses are unclear.

Brexit Victory

The Brexit victory sent immediate economic shockwaves through global markets. There is uncertainty over what will happen when the UK leaves the EU because it has to make new trade agreements with the rest of the world. Supporters of Brexit argue that EU countries have every incentive keep trading with the UK, which is a large importer of goods and services. But the Remain camp worries that foreign companies will be less likely to invest here and could relocate their headquarters if Britain loses access to the EU’s single market.

The impact of Brexit on UK employment law will depend, to a large extent, on the specific arrangements put in place to formalise the UK’s exit. If, for example, the UK follows the Norwegian model and joins the EEA, the UK would still be subject to most aspects of European employment law. The Swiss model, involving access to the single market and many bilateral agreements, could also restrict the sovereignty of employment law due to the need to satisfy trading partners.

What should employers do now?

At this stage the referendum outcome has no immediate legal impact and therefore employers don’t have to do anything now. The vote itself does not trigger any employment law changes and no changes are expected in the short term as the process via which the UK leaves the EU will take a number of years. At the end of the negotiations the withdrawal agreement will need to be ratified by both sides which again could be a lengthy process. Until we leave, all EU legislation (including workers’ free movement rights) will continue to apply.

What are the possible long term implications?

It is likely to take a while for the government to clarify its intentions and so employers will need to play things by ear.

Immigration

The free movement of people is one of the four economic freedoms of the EU.

Following Brexit, EU citizens will no longer have the automatic right to reside and work in the UK, and vice versa unless they have already obtained permanent residency. In reality however freedom of movement is likely to be an integral part of the negotiations around the post-Brexit relationship between the UK and EU. The UK is therefore unlikely to take any immediate steps to curtail EU nationals’ freedom of movement rights.

At this stage also nothing is expected to change from an immigration perspective for workers already in the UK.

If steps are taken to restrict EU nationals entering the UK employers may want consider taking steps such as bringing workers into the UK pre-emptively or taking steps to secure their immigration status before any restrictions take effect. Whether or not such restrictions will be put in place is questionable as the UK may not be able to negotiate a trade agreement with the EU without agreeing to the free movement of persons.

Employment Law

A significant proportion of the UK’s employment law comes from the EU, including discrimination rights, collective consultation obligations, transfer of undertakings regulations, family leave, working time regulations and protection of agency workers.

In theory post-Brexit the UK government could repeal all of this. However this is unlikely; any change is likely to be gradual and piecemeal and it is far more probable that EU law will continue to exercise a significant influence even after we leave for a number of reasons:

  • Protection against sex, race and disability discrimination, and equal pay provisions in the UK pre-dated EU law. Similarly, there was a UK right of return from maternity leave before EU maternity leave rights were implemented. It is unlikely that the government would want to scale back these protections;
  • Even if there was not a pre-existing UK right, modern social attitudes make any significant roll-back of discrimination protections politically unpalatable;
  • An even more compelling reason for the UK to continue to observe EU law is the need to stay in a relationship with the EU. The price of a trade agreement with the EU is likely to be adherence to a certain amount of EU employment and social protection.

On leaving the EU it will not automatically mean that all EU derived law simply disappears. Provisions giving effect to EU law are enshrined in UK primary legislation including for example, our domestic anti-discrimination legislation. A government no longer obliged to follow the EU line may be minded to repeal or, more likely, amend unpopular Regulations to create a more business-friendly legislative environment.

Areas in which there is unlikely to be change

The level of any national minimum wage, domestic unfair dismissal protections, and domestic rules on strikes will be unaffected as these are outside the scope of EU law.

It also seems unlikely the UK will repeal or significantly change the Data Protection Act 1995 as if UK businesses want to continue to operate in the EU they will have to transfer data between the UK and EU member states and this will require adequate protections equivalent to the current ones.

Discrimination law & compensation limits

Whilst repeal of anti-discrimination law is unlikely, some commentators have suggested that those forms of discrimination which were only implemented because of EU law and which enjoy less political consensus, for example age discrimination and fixed term/part time worker protections, may be targets for change. A cap could also be imposed on discrimination compensation similar to that for unfair dismissal; this is currently not possible under EU law.

Working Time Regulations

Whilst the WTR have been unpopular with successive UK governments, a wholesale repeal of the Regulations is unlikely. There are however aspects of the right to paid holiday and other rights under the WTR that the government may want to amend. Many businesses would be keen to see the repeal of the maximum 48-hour working week. The right of workers on long-term sick leave to continue to accrue and either take or carry over paid annual leave may also be ripe for change. A return to holiday pay based on basic contractual pay (rather than the current hot topic of holiday pay calculations needing to include regular overtime and/or commission payments) is thought likely.

TUPE

Although many businesses would like to see the back of TUPE, it seems more likely that the government would make small changes to it to make it more business friendly. Change could include making it easier to harmonise terms following a TUPE transfer, and relaxing the formality surrounding the information and consultation obligations.

Agency Workers Directive

The most obvious candidate for complete revocation if the Agency Workers Regulations which are complex and unpopular with businesses.

Summary

Overall it seems unlikely that UK employment law will be transformed in a significant way, particularly in the short term. Employers should therefore continue to follow existing rules on employment law.

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 incudes 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.
Working Time – Travel Time to First Job of the Day

RE: Federacion de Servicios Privados del sindicato Comisiones obreras -v- Tyco Integrated Security SL

This case confirmed the opinion of the Advocate General when heard by the Court of Justice of the European Union (CJEU) that travelling time from home to the customer’s premises may be regarded as working time for the purposes of the Working Time Directive. The case involved technicians installing and maintaining security equipment at various customers’ locations in Spain. There was provision of a vehicle and the technicians travelled from home to the locations to install the equipment.

Contact with the employer was made by mobile phone and it was only on rare occasions that they were required to travel to the employer’s office or a central location.

The CJE held that travelling time was not a rest period and found it to be working time. Employers should have regard to this when calculating the 48 hour working week. For further advice please contact the Association.

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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