Report by the Acting Depute Chief Executive (Strategic Lead: Safer Communities)
The purpose of this report is to make recommendations to Cabinet in respect of the
payment of holiday pay following recent changes in case law.
The right to a paid holiday is provided for by the Working Time Regulations 1998.
These Regulations implement within the United Kingdom what is now provided for by
the Working Time Directive 2003 (2003/88/EC, replaced Directive 93/104/EC).
The case law relating to holiday pay has developed significantly over the last 12
months. In particular, on 22 May 2014, the European Union Court of Justice (CJEU)
issued its judgement in the case of Lock-v-British Gas Trading Limited. Whilst this
case considered whether the commission received by a salesman should form part
of a calculation for holiday pay purposes, the CJEU determined that all pay elements
intrinsically linked to the performance of the tasks being carried out under the terms
of a contract of employment should be included in the calculation of holiday pay. This
principally refers to overtime payments. Only occasional or ancillary costs, such as
out of pocket expenses could be excluded from the calculation, such as travel or
subsistence costs.
In separate, but related cases, the Employment Appeal Tribunal (EAT) handed down
a judgment on 4 November 2014 regarding the cases of Bear Scotland Ltd and
Others v Fulton, Hertel (UK) Ltd-v-Woods and Others; and Amec Group Ltd-v-Law
and Others. Before this ruling, voluntary overtime was not included when calculating
a worker’s rate of holiday pay.
The EAT judgment has clarified that:
Workers should have non-guaranteed or voluntary overtime as well as
contractual overtime taken into account when they are being paid annual
In order to make a claim to an Employment Tribunal an employee must have
had an underpayment for holiday pay within three months of lodging the
If a claim involves a series of underpayments, any claims for the earlier
underpayments will fail if there has been a break of more than three months
between such underpayments.
The EAT has, however, granted the parties leave to appeal to the Court of Appeal (in
respect of the English proceedings). Leave to appeal to the Court of Session (in
respect of the Scottish proceedings) may well be sought and granted. Thereafter,
there may be further appeals to the Supreme Court, the UK’s final court of appeal. It
may therefore be some time before the law is settled. However, at this stage, the
Trade Union Unite which was a party to the Bear case has decided not to appeal the
The Judgment relates to the calculation of holiday pay in respect of the 4 weeks’
holiday (20 days) derived from the European legislation and not the additional 1.6
weeks’ holiday granted through UK legislation.
The Government has recently announced that changes will be made to Regulations
made under the Employment Rights Act 1996 which will limit claims for back payment
of holiday pay to two years. Employees will still need to show that a series of
deductions or underpayments occurred during that period. Also, as set out in
paragraph 5 above, any break in the series of 3 month periods or more will break the
series of deductions and limit the claims.
However, employees will be able to make claims under the existing rules until 1 July
2015 as these changes will be introduced only for claims made on or after 1 July
2015. While this may limit the impact of large backdated claims arising from the EAT’s
ruling in the above EAT cases there is still the scope for claims to be submitted up to
July 2015 with a potential backdating period to 1 January 2014 being the start of
annual leave year in 2014. However, it is acknowledged that if an employee sought
to make a claim for backdated holiday pay through the courts the potential backdate
period would be 5 years.
However, the new legislation will make it clear that the right to paid holiday is not
incorporated as a term in employment contracts which will avoid employees being
able to make claims through the courts for back pay for 5 years in Scotland.
In the meantime, the Council requires to make decisions in respect of two aspects
relating to holiday pay. The first decision relates to the future arrangements required
to ensure that the issues covered in the recent cases are addressed. The second
relates to how the Council addresses the issue of backdating.
It is proposed that the Council make appropriate payments for holiday pay with effect
from 1 January 2015. This settlement date is in line with the principle used by those
18 Councils who have so far implemented arrangements in respect of holiday pay.
The first date on which holiday pay will be included in employees’ pays will be in the
week four pay of either 12 May or 9 June 2015.
It is proposed that payments in respect of holiday pay will be made utilising the
established arrangements in respect of holiday pay for casual workers and term-time
employees which involves applying an 8.3% (20 days holiday/241 work days
available x 100) uplift to the pay elements covered by the payment. This 8.3% uplift
will be paid on all non-contractual payments made to an employee other than genuine
out of pocket expenses payments such as subsistence or mileage costs.
Utilising the 8.3% uplift obviates the need for detailed calculations in respect of each
employee and can be readily implemented using established payroll management
arrangements. Further, this methodology has been used by the other eighteen
Councils who have so far made payments for holiday pay. Comparative data from a
sample of calculations using the two methods showed that there was only a marginal
difference in the costs associated with using the 8.3% calculator and this would be
offset by the reduced administration required of it which would otherwise require
alignment of additional payments with actual holidays taken.
For the backdated element of the settlement with effect from 1 January 2015 the 8.3%
uplift will be made on the actual additional payments made during the period 1
January to 12 May or 9 June 2015.
The actual payment to an employee in respect of holiday pay will be as set out in the
following example:Overtime payment
8.3% of overtime payment
The holiday pay payment will be identified on an employee’s pay slip as accrued
holiday pay which will enable employees to be aware of the payment being made to
them regarding holiday pay, for example:Basic salary
Accrued holiday pay
Total payment
The above proposal will ensure that the Council meets its future obligations in respect
of holiday pay. The position in relation to back pay is less certain as it is impacted by
ongoing legal considerations.
On the basis of previous patterns, it is estimated that around 3,300 employees will be
subject to the foregoing arrangements in any one leave year.
The Trade Unions have submitted 293 claims for payment of holiday pay to the
Employment Tribunal. Further, the Trade Unions representing the Local Government
Employee workgroup have submitted a collective grievance in relation to holiday pay
accrual. The Trade Unions agreed previously to put this grievance on hold until it was
confirmed how the Council would be addressing the issue.
The Trade Unions have been advised of the proposals set out in this report. At this
stage it is not clear what their position is in respect of either the proposals or their
At present, Local Government employees undertaking higher duties receive a
payment from day one based on the percentage of higher duties they actually
undertake. The duties must be at a higher level and outwith the demands of their
current job.
Employees do not receive this responsibility payment when on annual leave, sick
leave or maternity leave. However, employees who are appointed on a temporary
contract receive their full salary when on annual leave or sick leave (subject to
individual sick pay entitlement).
To establish parity between those on a temporary contract to reflect the undertaking
of additional duties and those receiving a responsibility payment with no change to
their contract, it is proposed that with effect from 1 April 2015, employees undertaking
higher duties for a minimum period of four continuous weeks will receive the
responsibility payment when on annual leave or sick leave. Payment will cease if the
employee is on sick leave for a minimum of four continuous weeks.
Employees who undertake higher duties for periods less than four continuous weeks
will receive the 8.3% uplift in the same manner as the proposal set out in paragraph
The proposals set out above will ensure that the Council meets its statutory
obligations in respect of the relevant employment legislation.
The financial implications associated with paying holiday pay on the basis set out
above will in future financial years be around £320,000 per annum on the basis of
current levels of additional payments. The additional cost in 2014/15 of implementing
from 1 January 2015 will be around £80,000.
The backdated element will be met from uncommitted general fund balances. The
recurring costs will also be met from the uncommitted general fund in 2015/16, with
this recurring element being reflected in budget allocations from 2016/17 onwards.
Additional costs associated with the changes to the conditions relating to employees
undertaking higher duties will be met from existing Service budgets.
COSLA representatives met with Trade Union representatives during 2014 into 2015
on the possibility of working together to identify a potential settlement on a national
framework which would reduce or minimise the costs associated with any claims for
back pay. Those discussions have not reached any agreement and therefore it is for
each Council to conclude matters.
As indicated in paragraphs 18 to 19 the Trade Unions have submitted a collective
grievance which they have suspended pending the Council’s consideration of holiday
Cabinet is recommended to:(i)
agree that with effect from 1 January 2015 the 8.3% uplift be used to
pay backdated and future payments of holiday pay;
agree the proposal that with effect from 1 April 2015, Local Government
Employees undertaking higher duties for a minimum period of 4
continuous weeks will receive the responsibility payment concerned
when on annual leave or sick leave;
note that the Trade Unions have been advised of the Council’s intended
action; and
otherwise note the contents of the report.
Christopher McAleavey
Acting Depute Chief Executive: Safer Communities
24 March 2015