Business

It's the holiday season – what will you be paying your staff?

It is prudent for any employer to consider their current holiday pay policy and how it is calculated

THE summer season is upon us which for most should mean it's time for a well-earned holiday and a break from the stresses of life.

For businesses, it also means juggling staff holidays and workloads to ensure continued productivity throughout the summer months.

A key consideration for employers is how much they'll be paying their staff over any periods of leave.

The issue has been placed in the spotlight over recent years due to a series of complaints by employees that they have not received their due holiday entitlement.

A study by Middlesex University, published last month, put a figure of £1.5 billion on the amount of due holiday pay that goes unpaid annually to employees in the UK.

At the most basic level, full-time workers are entitled to 28 days paid holiday throughout the year, as introduced as part of the European Working Time Directive.

For those with variable hours it is the equivalent of 12.07 per cent of their average pay.

However, for some workers, the practice of only paying basic pay during holiday time has led to challenges.

Several high-profile cases over recent years have focused on the inclusion of other payments such as commission and overtime in holiday pay.

These included Lock v British Gas Trading Ltd, which confirmed that an employee's holiday pay, which had been calculated solely on his or her basic salary, ought to have also included other payments such as commission.

Similarly, Bear Scotland Ltd v Fulton and Baxter found that overtime payments should also be taken into consideration.

These cases and others have potentially opened the door for thousands of workers whose total pay is heavily reliant on payments above their basic salary to claim these additional payments as part of their holiday pay, thus increasing costs for businesses.

And while the possibility exists that the UK Government may seek some clawback on elements of the Working Time Directive as part of its negotiations around the withdrawal from the European Union, no major deviation is expected.

It is prudent, therefore, for any employer to consider their current holiday pay policy and how it is calculated, thereby reducing the risk of facing costly challenges in the future.

A thorough review of existing employee contracts should also be undertaken, of course, taking into account any voluntary overtime, sick leave and results-based commission.

Seeking professional advice can assist in ascertaining potential liability in respect of both underpayments and increased future holiday payments as well as minimising contingent liability from retrospective claims.

The earlier a strategy is put in place, the greater the certainty for employers as they seek to plan ahead and budget for future staffing costs.

:: Richard Willis is managing director of Willis Insurance and Risk Management

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