More changes to holiday pay?

Readers may be familiar with the ruling in the case of Stringer v HMRC (2009) which changed the rules regarding accrual of annual leave entitlement whilst on long term absence. Then in 2012 the European Court of Justice in the case of ANGED V FASGA and others ruled that employees who fall sick during their annual leave must be permitted to reschedule the time affected by illness. Now a Birmingham tribunal has ruled that holiday pay should be based on normal earnings not on basic pay. 

The case of Neal v Freightliner was heard in April this year but the judgement was only delivered in July. The argument put forward on behalf of Mr Neal was that the Working Time Regulations (1998) do not adequately transpose into UK law the intentions of the Working Time Directive (WTD). When Mr Neal was on holiday he received pay based on his basic hours of 35 per week but when at work he received shift pay and other enhancements. The attention of the tribunal was drawn to the opinion of the Advocate General of the European Union in the Stringer case that “ in assessing the amount of entitlement to paid holiday leave, it is necessary to ensure that the amount of the allowance in lieu that the worker receives is equivalent to that of his normal pay”.  It should be born in mind that the purpose of the WTD is to provide for the Health and Safety of Workers by ensuring that they take adequate time off work for rest and relaxation.  The argument was advanced that if employees are financially disadvantaged by taking annual leave, it could induce them not to take their leave.

So what is the potential impact? Many part-time workers, particularly in the retail sector, are given ‘contracts’ for only  one or two days per week but are regularly asked,  expected or even required, to work additional days. The irony is that Working Time Regulations (1998) already provide that for workers on a zero hour’s contract, their holiday pay shall be based on their average earnings. So a part-time worker who has been given a ‘contract’ for 2 days per week but routinely works 4 days will receive holiday pay based on only 2 days whereas if he (or more likely she) were on a zero hours contract the holiday pay would be based on the 4 days actually worked.

As the ruling was made at a court of first instance the Birmingham ruling is not binding on other tribunals. Moreover Freightliner has lodged an appeal in this case so the judgement may yet be overturned in the Employment Appeal Tribunal. Nevertheless it would be advisable for HR departments to check the position of employees who regularly earn enhancements over their stated basic pay, whether shift pay, bonus or additional hours to ascertain the impact if these are to be reflected in holiday pay.

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