There is no doubt at all that payment for non-guaranteed overtime, (where the employer doesn’t have to offer it but, if they do offer it, the employee has to do it) worked regularly, should be included in holiday pay calculations (for 4 out of the minimum 5.6 weeks of holiday pay).
Incidentally, guaranteed overtime (where the employer has to offer it and the employee has to do it) is included in normal hours of work so payments for this type of overtime must be included in the calculation for the full 5.6 weeks.
Holiday pay should include an element in respect of commission (for 4 out of the minimum 5.6 weeks of holiday pay).
As regards performance-related bonuses the position is not quite so clear (simply because we only have an ET decision on this point and not a decision by a higher court), although reading the key EAT decision in the case dealing with overtime it seems that this type of performance-related bonus should be included in holiday pay calculations (for 4 out of the minimum 5.6 weeks of holiday pay).
How to calculate holiday pay to include bonuses and commission
There is currently some uncertainty about the particular reference period which should be used to calculate the extra holiday pay due and about when the extra payment should be made – we hope to have some guidance on these points before long.
The general idea as to reference periods is that if there are fluctuations in the amount of bonus, commission etc over a period of time then a proper averaging exercise should be carried out to ensure an employee is not out of pocket.
If the guidance from the tribunals is not particularly helpful (and it may not be) we will need to decide what reference period we are going to use for each affected employee to try to ensure the extra holiday pay received fairly represents their entitlement for the particular period of holiday.
We may therefore have to, in respect of each holiday period taken, work out an average of bonus/commission earned over the previous 12 weeks or perhaps longer.
If therefore an employee takes a week’s holiday, and the average bonus/commission comes out at £75 a week, that should be added to their holiday pay for that week.
Back pay and time limits for claiming
Legislation comes into force on 1 July which limits claims for back pay to 2 years in relation to claims presented after that date.
Also, if an employee does not bring a claim for back pay within 3 months of the most recent underpayment then it seems that they lose the right to bring a claim in respect of all preceding underpayments.
Tribunals do have the ability to extend time in limited circumstances, but this is the general rule as to time limits in this type of case.
So if (perhaps from July?) you start making the extra payments and 3 months pass and no-one brings a claim, they have lost the right to bring a claim in respect of preceding underpayments.
And, because you are now paying “properly” there won’t be any ongoing underpayments.