Is your holiday pay correct?

Is your holiday pay correct?


For workers in industries where commission is significant such as the retail motor industry where more than half a sales executive’s income is likely to be made up of commission, what is the effect on holidays?

Firstly, how is holiday pay to be calculated?  Secondly, what about after the holiday?  When a worker is on holiday he or she is not generating commission and will suffer a reduction in pay post holiday?

Following two decisions of the European Court of Justice, the Employment Appeal Tribunal has held that the following elements of remuneration should be included in the calculation of holiday pay for the first four weeks’ annual leave under the Working Time Directive:

*commission payments

*incentive bonuses

*overtime that workers are required to perform regardless of whether it is guaranteed

*productivity/performance bonuses

*shift allowances and premiums

*travel and other allowances that are treated as taxable remuneration


At present, there is no definitive legal answer about how such holiday pay calculations must be made.  However, it is recommended that employers should average out the commission earned in the period before the holiday and make an allowance for it in the holiday pay.


The following elements of remuneration should not be included in your holiday pay:


*benefits in kind

*bonuses that are not linked to your performance

*expenses which reimburse workers for costs incurred

*one off bonuses and occasional payments


What should you do if your holiday pay is being underpaid?

Raise the matter with your employer as soon as possible with a view to reaching agreement over the underpayment and calculation of holiday pay in the future.  If this does not resolve the matter and you wish to issue a claim, there must have been an underpayment of holiday pay that has taken place within the last 3 months.  There is a limit on the amount of underpaid holiday pay that can be claimed.  The period that the claim can cover is limited to a maximum of 2 years.