What Should You be Including When Calculating Holiday Pay?
Commission, Bonus or Overtime? Should you or shouldn’t you include it in your holiday pay calculations…that is the question.
First let’s rewind a little though, to re-cap on current entitlements for UK workers. As we advise the business owners we help, employees are all entitled to a week’s pay in respect of each week of their statutory 5.6 weeks’ (or 28 days’) holiday entitlement. A regulation that’s part of the Working Time Directive and English Law.
This part is relatively straight-forward. But, for those business owners who have employees working within a commission, bonus or overtime structure holiday pay then becomes rather challenging.
The reason is that whilst there has been plenty of case law surrounding the definition of paid annual leave, disputes have arisen over those operating outside this basic structure.
It is accepted that a worker must receive ‘normal remuneration’ during their holiday. And, that the level of holiday pay must not only be sufficient to ensure that there is no serious risk that the worker would not take any annual leave, but to ensure that normal remuneration is maintained.
So, this means that in calculating the amount of holiday pay due regard must be given to commission, overtime and bonuses.
How to calculate holiday pay – with commission and overtime in mind
Find an average which reflects the commission earnt over the whole year. This is particularly relevant to seasonal businesses and could involve looking back over 12 months as opposed to a usual period accepted by the Courts (often just 12 weeks).
As with commission, overtime is calculated on a similar basis and is an entitlement of the worker even if there is no contractual right to overtime. It is simply based on there being an established pattern of work which results in the worker carrying out overtime.
How to calculate holiday pay – with bonuses in mind
Bonuses can be more problematic, but the key is to maintain a focus on ‘normal remuneration’.
Getting the remuneration right can be tricky. The key is to work with an experienced HR/Employment solicitor to structure a bespoke formula for dealing with holiday pay where commission, overtime and bonuses are involved in your worker’s financial package.
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