In practice, most operators either applied a rate of pay agreed with the recognised union through annual pay talks, or took an average of a driver's basic pay over the 12 weeks prior to the period of leave. However, a plethora of judgments changed the way statutory holiday under the Working Time Directive (the 20 days' entitlement) has to be calculated. Is your business compliant?
What elements should you be including?
As a starting point, it is advisable to use a 12-week reference period, looking back from the date the period of leave commences. If a contractual holiday pay rate applies, this may need to instead form the minimum rate of holiday pay, unless it can be removed through consultation.
- The basic principle is that holiday pay should correspond to 'normal remuneration'. This should include, 'payments linked intrinsically to the performance of the tasks which the worker is required to carry out under their contract of employment'. There is little argument that the 20 days should therefore include involuntary overtime.
- With voluntary overtime (including worked rest days), an 'intrinsic link' appears to be less important, but it needs to be 'sufficiently regular or recurring'. However, there is no real guidance as to what amounts to 'regular'. For example, a Tribunal may consider it is sufficient to work overtime once a month, or once in every six weeks. Operators should look for patterns of overtime and be consistent as to what they will treat as 'regular' and therefore included in holiday pay.
- There is a grey area with discretionary bonuses. The general approach is that these should be included where 'intrinsically linked to the performance of some element of the contractual duties'. One-off bonuses and occasional bonuses need not be included. For example, it is arguable that attendance bonuses are linked to performance, by way of an incentive, and should be included. This contrasts with Christmas bonuses.
What weeks should / should not be included in the 12 week reference period?
- Where no remuneration is paid (e.g. where sick pay has been exhausted), these weeks should be excluded;
- Company sick pay amounts to remuneration, as can SSP (on the basis it can no longer be partially recovered from HMRC). Therefore, these weeks can be included;
- Where a driver is on OML, AML, parental leave, paternity leave or adoption leave (and where payments are less than they would normally receive), these weeks must be disregarded.
- It is arguable that holiday pay received in the 12 week reference period may itself amount to remuneration and be included.
Where holiday pay has not been calculated properly, a driver may present an unlawful deductions from wages claim within three months of the last deduction. If successful, they could receive compensation looking back two years from the date the claim is presented, unless the operator can show a break in the series of deductions of three months or more. Correct payments can break the series but it is, in any event, advisable for operators to take advice and make any necessary changes as soon as possible so as to limit liability going forward.