Published by: Heather Cowley

Changes to holiday pay – what does it mean for your business?

A series of recent decisions has left many employers confused about the calculation of holiday pay. 

For workers with a settled pattern of work, the Working Time Regulations provides that holiday pay should be calculated by reference to basic salary. 

In British Airways v Williams and British Gas v Locke, the Court of Justice of the European Union (CJEU) held workers should receive “normal remuneration” when on holiday which includes payments  “intrinsically linked” to tasks a worker is required to carry out under their contract.

This principle was applied by the Employment Appeals Tribunal (EAT) in Bear Scotland vs Fulton.  The EAT stated payments have to be made for a sufficient period of time to justify the label “normal”.

These principles apply to the first 4 weeks’ of holiday provided for by  the Working Time Directive (implemented in the UK by the WTR) only.

It is likely that the following types of payments will amount to “normal remuneration” and should be taken into account when calculating holiday pay:

Overtime payments (including voluntary overtime if it is worked on a regular basis)
Commission payments
Bonus payments
Payments or allowances made in relation to time spent travelling;
On call and standby payments
Acting up supplements
Any other regular payments

Underpaid holiday can be claimed as a series of unlawful deductions.  Workers can claim backdated holiday provided that their claim is submitted within 3 months of the final deduction and there has not been a period of more than 3 months between each deduction.  For claims brought on or after 1 July 2015, holiday pay can only be claimed  for a period of 2 years. 

Employers should consider:

The payments workers receive to establish potential liability for underpaid holiday and whether any changes should be made to holiday pay calculations;


If changes are needed, how those changes should be made. There are dangers associated with making changes to the way that holiday pay is calculated and businesses should consider taking legal advice on an appropriate strategy.