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In truth holiday pay rules changed some time ago but there has been some clarification over the relevance of overtime and a quick re-visit may be a good idea.

Regular overtime, rather than merely guaranteed overtime, has to be included in calculation of the holiday pay rate. Only ad-hoc, occasional overtime can be ignored.

Calculating it as an average of the last twelve weeks worked is, in most cases, satisfactory. But if overtime is very seasonal this calculation will vary the rate depending when the holiday is taken. In those circumstances, averaging the rate over the past twelve months should not prove contentious.

Commission earned must be included although precisely how that might be taken into account is subject to dispute. If commission is calculated and paid on an annual basis an employee does not lose commission directly by taking holiday. The underlying principle behind the European judgment on this issue is that an employee should not suffer a drop in pay when taking holiday.

Bonuses pretty much fall in to the same category for the same reason.

Where these bonuses or commission payments are a small part of the overall earnings package then there is unlikely to be a dispute in any event. In the lead case that resulted in this change, the employee’s commission was a substantial part of his earnings.

Technically, overtime that is not guaranteed applies solely to the first 4 weeks of holiday.

Malcolm Martin FCIPD

Author Human Resource Practice