Holiday pay calculations

Holiday pay calculations have been a recent source of much debate, and the judgement in De Mello and others V British Airways Plc [2024] EAT 53 has thrown more fuel on the fire. In this case the Employment Appeal Tribunal has provided greater understanding of what should be included in holiday pay.

In the case of De Mello v British Airways Plc, the Employment Appeal Tribunal found that the meal allowance payments could possibly be included in statutory holiday pay.

The meal allowance was introduced as a flat rate allowance by the airline for cabin crew and was aimed at saving the burden of handling thousands of receipts per day to compensate their employees for meal expenses.

The general principle in terms of holiday pay is that it should not be calculated in a way that, so far as possible, the worker is deterred from exercising a right to paid leave by reason of financial disadvantage.

It was found that the level of holiday pay should correspond to normal remuneration- this is likely to include payments which are broadly regular in a temporal sense. In layman terms this would include payments which form a pattern and regularity.

Before the case was appealed, the tribunal made the decision that any gap of three months or more between deductions would break the chain. This upheld the decision of Bear Scotland v Fulton. The basis of this decision was, for the most part, because the payments were intrinsically linked to the performance of duties and the airline was unable to show that they had intended to cover occasional or ancillary costs.

The Employment Appeal Tribunal however found that the tribunal was wrong to put the responsibility of evidential burden on the airline and instead the tribunal should on balance of the relevant facts and circumstances decide whether the meal allowance was performance-related or an expense. It was found that an intrinsic link between payments and performance of the contractual task is critical in determining this.

Whilst the decision of the Employment Appeal Tribunal meant that the case was remitted to the tribunal to make a decision on whether there was a sufficient ‘temporal’ link between the deductions, the Employment Appeal Tribunal did note that when looking at the time-gap issue, the tribunal needs to bear in mind that there will always be gaps in time between periods of holiday pay payments.

For employers it is important that if any benefits, such as the one detailed above, are in place or are being considered to be introduced for employees, the allowances may be included as an additional cost when paying holiday pay. Please be aware the judgment is still waiting for a final hearing in the employment tribunal so this is definitely one to look out for in the future.

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