The rules on how to calculate holiday pay are changing. Jessica Higgins offers her expert advice on how to resolve this potential headache

Many staff in health clubs work overtime. In addition, commission or bonuses often make up part of their pay.

It’s therefore crucial that gyms are aware of recent legal decisions whereby compulsory overtime (where an employee is obliged to work overtime you offer) and the commission employees normally earn must now be included when calculating holiday pay.

In other words, when calculating holiday pay, a business has to factor in not just an employee’s basic salary, but also the commission they would normally earn and any extra income they would expect to get – a bonus, for example, or from working compulsory overtime.

The position in respect of voluntary overtime is less clear, but current advice is that – if your staff regularly work such overtime as part of their normal duties, as many in the industry do – it should be included as part of their holiday pay. Bonuses and other regular payments should also be included.

Sick leave vs holiday
Also of note is that employees on sick leave continue to accrue holiday entitlement. Staff on long-term sick leave can chose to designate some of that sick leave as annual leave and be paid for it. Alternatively they can carry over any accrued but untaken leave into the next holiday year for up to 18 months. If their employment ends, they would be entitled to be paid for the accrued holiday even if they were off sick at the time.

Conversely, employees who book holiday and then get sick have a right to reclaim their holiday.

Of course, if there’s no sick pay – which is the likely scenario in most cases – it would be rare an employee decided they’d rather not be paid, by designating the day as a sick day rather than paid holiday.

Changing hours
Finally, a common occurrence in the industry is staff changing their hours – for example, switching from full-time to part-time or vice versa. What happens to holiday pay in this scenario? Thankfully any leave already accrued does not need to be recalculated to retrospectively to reflect the increase/decrease in hours. You just calculate leave from the point of the change in hours.

Be warned…
If you fail to pay correct holiday pay, your staff will be able to bring a claim in the Tribunal for an unlawful deduction of wages. This must be done within three months of the date of the failure to make payment. Claims are limited to a two-year period over which the deductions were regularly made, meaning there must have been no more than a three-month gap between the deductions.