Under UK law, a worker is entitled to be paid during a period of statutory annual leave at a rate of a ‘week’s pay’ for each week of leave. Often a week’s pay is calculated to include ‘basic pay’ only, and would not include commission, bonuses or overtime. In industries such as recruitment and retail (where typically basic salaries are modest, but the potential to ‘top up’ salary though commission and overtime is significant), some workers found themselves out of pocket by virtue of taking holiday, because only their basic salary was payable. The net result was that some people were dis-incentivised, and often financially prejudiced when taking annual leave.
This could all be set to change following the Employment Appeal Tribunals joint appeal on three significant cases on this issue. In these cases the Claimants were each paid their basic salary only when they took annual leave. Relying on a European Directive which states that workers should receive “…any supplements …or allowances which are intrinsic to their role” the Claimants argued that commission and overtime should also have been included.
Amongst the issues the Tribunal need to consider are:-
- Has the UK Government failed to correctly implement a European Directive into UK law?
- How far back in time can Claimants’ claim any unpaid salary for?
If the Claimants are successful in their claims, it is possible that they could claim for the difference between basic pay and any commission or overtime payments dating back to 1998. Clearly this could have huge implications for businesses and in some cases the financial liability for such claims may be so significant it could prevent them from trading altogether. As a result, the Government has intervened in an attempt to limit any historical claims to six years, but this issue remains unresolved.
It is common knowledge that Unions and “no win no fee” claim companies are eagerly awaiting the judgment which has already been described as a “ticking time bomb” for businesses. Now is the time for employers to evaluate any potential liability to such claims and take action to limit their potential exposure.
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.