Ami Naru of Travlaw urges firms to undertake an audit after new laws came into force
On January 1, new laws came into force regarding holiday pay, these will affect many if not most employers in the travel industry.
Many employers in their travel industry pay staff commission for selling holidays, and regular overtime is commonly used during the peak sales season, for example.
Should holiday pay include commission and overtime, or should it just include basic pay during any period of annual leave?
Employees are entitled to a minimum of 5.6 weeks leave per year, made up of four weeks derived from EU law, and 1.6 weeks leave from UK law.
In terms of the four weeks’ EU leave, EU case law over recent years has stated that ‘normal pay’ for holidays must include regular overtime and commission payments otherwise there would be a detriment to individuals taking holiday leave as they would earn less while on holiday.
There had been some confusion whether this would continue to be the case and what would happen after January 1, 2024, when EU supremacy over UK law ended.
The government has now decided to enshrine the existing position under EU law into UK law.
‘Normal pay’ under UK law has now been defined to include regular overtime and commission payments intrinsically linked to the performance of tasks which the worker is obliged to carry out under the terms of their contract.
This means employers will now have to ensure ‘normal pay’ is paid for at least four weeks of an employee’s annual leave. It is up to the employer whether they opt for normal or only basic pay for any additional leave over and above the four weeks.
From a pragmatic viewpoint, some employers already pay all leave at the ‘normal pay’ rate.
But prior to the implementation of these changes into the UK statute books, only a handful of travel industry employers have, in my experience, been calculating holiday pay correctly – mostly through ignorance of the EU legal requirement to adjust holiday pay to normal pay, rather than deliberate flouting of the law.
Given the position has now been crystallised in UK law, if you are a travel employer who has not adjusted how you calculate holiday pay you should take advice on compliance and minimising backdated claims.
Doing nothing is no longer an option. All that will do is increase potential liability in future as employees can claim backdated pay going back two years.
The message to employers is simple: undertake a holiday pay audit, work out exposure to any backdated claims and recalculate the way holiday pay is paid to staff.