Holiday Pay Calculation

We have prepared a short update to remind employers what to include in holiday pay calculations:

Guaranteed overtime which is set out in the contract, must be included within the calculation of holiday pay.

Non-guaranteed overtime – where the employer does not have to offer overtime but when they do the employer is contractually obliged to work it. Where this exists, then normal non-guaranteed overtime must be taken into account for the purposes of holiday pay (ie the overtime that WOULD have been worked if the employee had been at work).

Voluntary Overtime is where the employer offers overtime but there is no contractual obligation to work it. There is currently no definitive case law to suggest that voluntary overtime needs to be taken into account when calculating holiday pay, but several Employment Tribunal rulings have judged that voluntary overtime should be included when undertaken regularly. An Employment Appeal Tribunal decision is expected in 2017 and may provide definitive case law on the inclusion of voluntary overtime in holiday pay.

Commission is usually an amount of money a worker receives as a result of making sales and can make up some or all of their earnings. Results based commission must be factored into holiday payments for the 4 weeks of statutory annual leave required under European law. There is no requirement to do this for the additional 1.6 weeks of statutory annual leave provided under UK law, or for any additional contractual annual leave allowance.

Work-related travel can have a number of different meanings but usually means any travel for work purposes that is not a commute to the usual place of work. Where payments are made for time spent travelling to and from work as part of normal pay, these should be considered when calculating holiday pay.

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