Calculating holiday pay

The Court of Justice of the European Union (CJEU) decided that it’s not enough to only consider basic pay when working out remuneration for holidays.

The principles established apply to workers whose pay is composed of a core element and supplemental sums, and employers need to look closely at whether such supplements really form part of the performance-related element of the job or are incidental.  The decision related to whether these additional amounts should be reflected in holiday pay

Williams (and others in this claim) were pilots with British Airways. Their normal pay was made up of three elements:

• a fixed annual sum
• a supplemental sum (paid as salary) for time spent flying, calculated at a rate of £10 per planned flying hour
• a supplemental sum (paid as a mixture of salary and expenses) for time spent away from the home base, calculated at a rate of £2.73 per hour.

Their terms and conditions specified that holiday pay would be based on the fixed annual element of pay only. The pilots argued that they should receive holiday pay calculated to include all three pay elements.

The UK’s Supreme Court referred a series of questions to the Court of Justice of the European Union (CJEU) seeking clarification of the meaning and application of “paid annual leave” under the working time directive.

The CJEU concluded that payments “linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided which is included in the calculation of the worker’s total remuneration” must be included. However, aspects of remuneration that cover occasional or ancillary costs arising when tasks are performed, such as compensation for being away from home, need not necessarily be taken into account when calculating an annual leave payment. This exception is likely to be limited to expenses.

The court confirmed that when calculating normal pay, national courts should assess the intrinsic link between the various components, on the basis of an average over a reference period judged to be representative.