Remuneration during annual leave

 

 

The usual expectation is that all normal elements of contractual remuneration will be paid to an employee during annual leave.  The Working Time Regulations 1998 imply that this should include all contractual payments such as shift allowances and contractual overtime, i.e. that which is guaranteed by the employer and where the employee is obliged to work it.

 

However, there can still sometimes be grey areas around the inclusion of certain allowances/payments, and whether these should be taken into account when calculating the amount to be paid during a period of annual leave.

 

A recent case heard by the European Court of Justice (ECJ) gives clear guidance on this issue.

 

The case of Williams and ors v British Airways plc stemmed from the fact that, whilst its pilots received various allowances in addition to their basic salary while working, British Airways (BA) paid them only their basic salary while on leave.  In doing so, BA relied on the fact that Regulation 4 of the Civil Aviation (Working Time) Regulations 2004 entitles pilots and other crew members to paid annual leave of at least four weeks, but  does not set out how that pay is to be calculated (in contrast to the Working Time Regulations 1998).

 

The pilots contended that their holiday pay should be fixed at a comparable rate to the amount that they received while working. They argued that it should include flying time supplements, which are fully taxable as remuneration, and the taxable element of supplements paid in respect of time spent away from base (as distinct from the element that was taken to represent expenses).

 

Following a reference of the issues in the case to the ECJ by the Supreme Court, the ECJ has clarified that a correct interpretation of the EU Working Time Directive (No.2003/88) and the EU Civil Aviation Directive (No.2000/79), demands that a worker must receive his or her normal remuneration during a period of annual leave.  This means that the payment for that leave should place the worker, during a period of rest, in a position which is, as regards remuneration, comparable to a period of work. Therefore, remuneration for such leave must, in principle, be determined in such a way as to be equivalent to the normal remuneration received by the worker.

 

Accordingly, the ECJ held that each element of pay must be analysed separately to see if it constitutes part of normal remuneration. In addition to basic pay, any element of pay which is intrinsically linked to the performance of the tasks which the worker is required to carry out under his or her contract of employment and for which a monetary amount is provided, such as (in this case) a payment for flying time, must be taken into account when calculating the amount of holiday pay due to the worker. Components of remuneration related to the worker's professional and personal status - such as allowances relating to seniority, length of service and professional qualifications - must also be maintained during a period of paid annual leave.

 

The ECJ  indicated that, by contrast, elements of the worker's pay which are intended exclusively to cover occasional or ancillary costs arising from the performance of work, such as allowances to meet costs connected with the time that pilots have to spend away from base, need not be included in the payment.

 

The ECJ’s ruling makes it absolutely clear that task-related allowances, as well as basic pay, must be included in the calculation of holiday pay, and is thus of potential relevance to any employee - not just pilots - who receives such allowances.

 

In practice, this case is unlikely to have much impact on the UK public sector, which has usually applied the Working Time Regulation requirements to include all contractual payments of remuneration in holiday pay.