Holiday pay reference periods for workers with no fixed hours or pay

Specialist employment lawyer, David Dixey, provides an update on holiday pay. 

In a previous article 'Holiday pay and overtime - know your entitlement' I considered new cases clarifying an employer’s obligation regarding proper calculation of holiday pay, in particular in circumstances where regular overtime (including voluntary overtime) is paid. 

In 2019 we considered the case of East of England Ambulance Service NHS Trust -v- Flowers which confirmed that employers should include voluntary overtime (where an employer is not obliged to offer the overtime and the worker is not obliged to work it) in holiday pay calculations in respect of paid leave under the Working Time Directive (WTD).

Although the Court of Appeal appeared to clarify the issue last year, in early 2020 the UK Supreme Court granted the NHS Trust permission to appeal. We will report on the outcome of the “Flowers” appeal in due course.

Holiday pay - no fixed hours or pay

From 6 April 2020, the reference period to be used when calculating holiday pay for workers without fixed hours or pay increased from 12 weeks to 52 weeks. This is intended to ensure workers who do not have a regular working pattern throughout the year are not disadvantaged by having to take holiday at a quiet time of the year when their weekly pay might be lower.

If a worker has not been employed for 52 weeks employers should use however many complete weeks of data they have as the reference period. The reference period must only include weeks for which the worker was actually paid. Where there are gaps, the employer should include earlier weeks, subject to an overall capped period of 104 weeks.

The calculation of holiday pay (particularly where voluntary overtime is concerned) currently remains under review by the Courts.  If an employer is unsure, they should consider taking advice. Where businesses regularly offer paid overtime as a means of managing resource and capacity, they should ensure overtime is adequately defined within staff contracts.