Holiday Pay: How much are your employees due?

   

There have been fears in the hospitality trade recently that some employees may be due substantial sums as a result of underpaid holiday pay. This has resulted from confusion over the interpretation of the Working Time Regulations (WTR) and in particular the question of whether “normal remuneration” for the purposes of holiday pay entitlement should include an element of overtime pay. On 4 November 2014 (in the case of Bear Scotland Limited v. Fulton) the Employment Appeal Tribunal looked again at whether overtime pay should be taken in account when calculating holiday pay. When does overtime need to be considered? Holiday pay should always be calculated by reference to “normal remuneration” which it has long been accepted may include guaranteed overtime, commission and other employee allowances. The recent EAT decision also made clear that when calculating how much your employees are due you need to take account of “non-guaranteed” overtime – i.e. overtime which the employer is not obliged to offer but the employee is contractually required to undertake if the employer so requests. Does this apply to all holiday pay? The WTR only apply to the first 4 weeks of annual leave taken by each employee (also known as regulation 13 leave).

Hospitality Insight November 2014

 

 

Employees in the UK are usually given between 5 and 6 weeks of annual leave each year but as the WTR only apply to the first 4 weeks they may end up being entitled to holiday pay at a lower rate for the remaining period of leave. How can I work out what “normal remuneration” is when there is no “average” week or regular pattern of work in the hospitality industry? Best practice dictates that you should average out payments made to an employee over a minimum period of 12 weeks in order to work out his or her “normal remuneration”. Am I going to face back-claims from my employees? Under the WTR, an employee can only claim for underpayments arising in the three months prior to the presentation of a claim. An employee may however claim for a “series of deductions of wages” under the Employment Rights Act (ERA) and this has enabled employees to make claims for underpayments going back many years. The EAT is clearly concerned about the impact that a series of back-claims could have and has therefore tried to limit the potential for claims. In its judgement it states that employees cannot claim for holiday underpayments as part of a series of deductions of wages where more than three months has elapsed between deductions. What else do I need to consider? How about tips? Tips and service charges paid directly to employees by customers do not form part of their “normal remuneration”. Similarly where employees are not contractually entitled to these types of payments even if they are collected by you and distributed, using the tronc system for example, they do not need to be taken into account when calculating holiday pay. What do I need to do now? The Business Secretary Vince Cable has established a taskforce to look in more detail at the possible impact of the EAT judgement and leave to appeal has also been granted so the position may change. In the interim you should at least protect yourself with these few simple steps: • Review the manner in which you are currently calculating holiday pay to ensure it is correct. • Carry out an audit of previous holiday pay – whilst back pay claims are lightly to be limited it is always worth knowing your potential exposure. • Review your contracts of employment to ensure they limit your liability as much as possible – in particular any overtime provisions should provide for voluntary rather than non-guaranteed overtime.  About  Hedges

Hedges Law are specialists in the hospitality industry and are here to guide and assist you through any issues that may arise to ensure your business goes from strength to strength. If you are a restaurant, hotel or pub owner we can advise you on the following areas and more: business formation and growth, planning issues, property contracts and disputes, sales and acquisitions, employment matters and regulatory issues. We pride ourselves on being down to earth, approachable and able to respond to our clients' needs in a quick and pragmatic manner. Whilst every client has different requirements our knowledge of the market and ability to really understand our clients’ business needs ensures that we are able to obtain the best outcome for them. We would welcome your call to discuss any of the issues raised in this briefing and are always happy to meet with you if you would like an initial view on how we might be able to assist. Please contact our Head of Property and hospitality expert Vicky Hernandez via email at vicky.hernandez@hedgeslaw.co.uk or by telephone on 01865 594 276

For more information please call us 01865 594265 or visit hedgeslaw.co.uk