A recent EAT ruling highlights the complexities of calculating pay for statutory holiday. An employer must pay "normal remuneration" for the 4 weeks' EU-derived leave, the meaning of which has been the subject of much (and continuing) case law. However, domestic law provides for an additional 1.6 weeks' holiday and the payment for this is to be calculated as set out in the Employment Rights Act 1996; for employees whose pay does not vary with the amount of work done this is the pay for a normal working week.
Econ Engineering Limited v Dixon concerned whether holiday pay should include a profitability bonus that was paid to all employees as a variable uplift on their hourly rate for the previous month reflecting company profit above a specified target.
The first instance tribunal ruled that the bonus should be included in "normal remuneration" for the 4 week entitlement: caselaw has established that this must include any remuneration that has an "intrinsic link" with the performance of the contractual tasks and the tribunal considered this link was clearly present given that the bonus was an enhancement to pay for the hours the individual actually worked.
The employer did not take this point on appeal, but did argue that the bonus should not be included in pay for the additional 1.6 weeks' leave. The EAT agreed, holding that the employer was only obliged to include sums legally payable simply because the employee has worked their normal working hours in a week and not contingent on any other factor. The bonus here was contingent on the company hitting a profitability target and therefore did not need to be included in this calculation.
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