Holiday pay may be a boon for employees but for employers, statutory holiday pay is increasingly problematic. The problem is not simply that employees can accumulate holiday pay whilst off sick. Nor even that if they fall ill on holiday they can switch to sick leave. The far more telling blows are the decisions of the ECJ to the effect that holiday pay must include not only basic pay but also an element to reflect other parts of the package which reward work done (as opposed to expenses payments) such as commission and, possibly, overtime.

The difficulties of calculation may be formidable. If earnings from commission are variable, the same is inevitably true of commission based holiday pay. A more potent problem is that it is possible for claims to extend backwards over time for many years. This is because, provided an employee brings a claim for underpayment of holiday pay within 3 months of the last day of underpayment, he can also claim for any previous days of underpayments since they count as being “part of a series of deductions” for the purposes of s.27 of the Employment Rights Act. In such a case there is NO limitation period.

Consider the following:

Helen works for a digital advertising company Incentive Ltd. Like four of her colleagues, she is a paid a basic of £1500 pw net and earns on average £3,000 net commission. She has just come back to work having had 10 days holiday. Her holiday pay has always been calculated on the basis of her basic pay £375/ week or £75/day. However Helen should have been paid an extra £150/day while she was away i.e. £1,500

However Helen had also taken a further 14 days holiday earlier in the holiday year for which she is now owed 14 x £150 = £2,100

Even more worryingly Helen has been with the company for 10 years and has taken 28 days holiday each year leading to an underpayment of £42,000.

Thus Helen is owed £45,600 and her 4 colleagues paid on a similar basis may have similar claims.

Clearly Incentive Ltd needs to take urgent action – including making sure all future payments of holiday pay are correct.