Calculating Annual Leave Payments – more difficult that it looks
The John Lewis Partnership has announced that it is paying out a total of £40M backpay to staff, having discovered that it had been calculating holiday pay incorrectly for several years. It had not included the premium rates paid for Sundays and Bank Holidays when calculating the average weekly pay and had based it solely on numbers of standard hours the partners worked per week.
This is not the only problem that has recently come to light with the issue of calculating holiday pay. An employment tribunal decided, in Neal v Freightliner, that EU law requires that a worker's holiday pay should include not only salary, but also any element of remuneration 'intrinsically linked' to the tasks required under the worker’s contract. The tribunal said that this included both compulsory and voluntary overtime, as well as basic salary. Currently, many businesses calculate holiday pay on the basis of basic salary only, so this could have a major impact.
The Neal decision is being appealed so businesses may decide to wait until the outcome of the appeal process before making any significant changes,
However, in the meantime, businesses should ensure that working time and overtime records are accurate. If the Neal decision is upheld, holiday pay will need to include shift premiums and overtime pay, so proper record-keeping is essential. For further advice or to discuss the implications of this development please get in touch.
Posted on 19 Nov 2016