Working Time: Calculation of holiday pay

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Working Time: Calculation of holiday pay

Published 8 February 2019

The facts

Mr Hein works in the German construction industry. The collective agreement for this industry, which governs how the industry workers’ holiday entitlement and pay is calculated, entitles workers to 30 days’ paid holiday in each leave year, even where they have been on short time working during the holiday year. This is in excess of the minimum Working Time Directive entitlement. Mr Hein was on short time working for a total of 26 weeks during 2015 (during this 26 week period, his employment continued but he did not perform any work). The calculation of his holiday pay took into account this short time working, meaning that he was paid much less for his holiday than if he had not been on short time working. He brought proceedings, arguing that the period of short time working should not have had the effect of reducing his holiday pay.

The German court asked the European Court of Justice (ECJ) whether the Working Time Directive precludes account being taken of reductions in earnings during a reference period because of days where no work was performed due to short time working.

The ECJ held that the Working Time Directive does preclude this, and that domestic legislation, as far as possible, needs to be interpreted so that holiday pay in respect of the minimum annual leave provided for in the Directive is not less than the average of the normal remuneration received by a worker during periods of work. Mr Hein was entitled to a minimum of two weeks paid holiday under the Working Time Directive (though he was entitled to more under the collective agreement) and the calculation of his holiday pay for this two weeks should therefore have been based on what he would have been paid when working, and not taken periods where he was paid less on short time working into account.

For employers in the UK, the comments by the ECJ about the treatment of overtime will be the most interesting aspect of this ECJ decision. Under current UK case law, guaranteed overtime must be taken into account in the calculation of holiday pay, so must overtime, whether it is compulsory or voluntary for the employee, if it is sufficiently regular or recurring to qualify as “normal”. In this case, however, the ECJ’s comments on overtime, on face value, suggest that voluntary, non-contractual overtime payments need not be taken into account in the calculation of statutory holiday pay, as they are not “normal remuneration”.

What does this mean for employers?

The ECJ’s comments on voluntary overtime should be treated carefully. Unless and until this question is reconsidered by the UK courts, employers are still subject to an Employment Appeal Tribunal decision that regular non-contractual overtime payments should be included in statutory holiday pay.

Torsten Hein v Albert Holzkamm GmbH & Co.

Authors

Zoë Wigan

Zoë Wigan

London - Fetter Lane

+44 (0)20 7894 6564

Ceri Fuller

Ceri Fuller

London - Fetter Lane

+44 (0)20 7894 6583

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