Employers warned on changes to holiday pay

EMPLOYERS have been warned they could face costly bills if they fail to calculate holiday pay correctly this summer following new European case law.

Employers have been warned to prepare for holiday pay recalculations after a new court ruling. Picture: Getty Images

The changes affect those who normally earn commissions in jobs such as sales or recruitment, as well as care workers and others who receive night shift ­allowances. They will also impact those on zero-hours ­contracts.

Previously, most employees were only entitled to their basic salary while on annual leave. However, European courts have found this to be unlawful, as it discourages those who earn the majority of their income from overtime, allowances and commissions from taking time off.

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Employers must now pay the equivalent of what an employee would normally earn if they had been at work.

Donald MacKinnon, dir­ector of legal services at LAW at Work, said: “This will be the first big holiday pay season where the new rules are something that businesses should be paying attention to if they want to avoid being taken to court or have additional years added to the potential back payment to all past employees.”

He said calculating this could be complicated, as there is no established method for doing so.

He recommends taking an average over a three-month period: “This means that each employee’s pay record should be reviewed for at least the 12 weeks ­before the annual leave ­period to calculate what the average pay was for a week.”

It is estimated that up to five million UK workers will be due additional holiday pay under the new rules. Business groups say this could drive some small firms to the wall.