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The European Court of Justice has now ruled that holiday pay should not be based on basic wages or salary only. The implications are that commission, overtime, additional allowances (such as a night shift supplement) should all form part of holiday pay even if an employee is not making sales, working no overtime and is able to get a good nights sleep, while on holiday.

Since this is based on a interpretation (or “re-interpretation”) of the 1998 Working Time Regulations, as a worse case scenario this could mean calculating back-holiday pay for 16 years! Many SMEs could go out of business. Should that prove to be the case the Justices could be giving us live experience of the legal concept: fiat justitia ruat caelum “Let justice be done though the heavens fall”!

It may be premature to envisage such a nightmare scenario, but if the normal pay you provide to employees is supplemented by commission, overtime or regular allowances then now is the time to be thinking about the implications and to be making adjustments.

Can you assess the back pay that might be due? Have you the records to do so? How much back-holiday pay may be due per year of employment? How many employees? Can you budget to pay for it?

Some guidance on how to assess back-holiday pay may emerge from another case (relating to overtime) expected to be ruled on in July.

But now is certainly a time for “watch this space” not for burying heads.

In any event, there is a strong argument for immediately correcting any practices which, in the light of the ruling, are now either unlawful or likely to be. That will reduce the likelihood of future claims and may make it less likely that historical claims will be made.

Employers who fail to recognise the need to make an adjustment could find themselves very seriously on the defensive if they wait for a claim. Recognising the need to adjust holiday pay now will put the onus on employees to prove any subsequent case and that may be a barrier for those employees in making claims against you.

If you would like to talk through the implications, then please contact us.