Brexit: How leaving the EU could affect your holiday pay


With the prospect of Brexit now upon us, commentators continue to be unsure as what effects it might have on UK businesses…

When it comes to employment, there is significant uncertainty around salaries. And with various legislation recently passed around holiday pay, overtime and commission, knowing which parts of your contract are governed by EU law – and so, could be subject to post-Brexit change – could help manage risk and keep surprises to a minimum.

Here’s our guide to what could happen and how Brexit could affect your holiday pay and overtime allowances:


Working Time Regulations

In 1998, The Working Time Regulations introduced statutory limits on working time, paid breaks and holidays.

It also required workers be given a minimum of four weeks paid holiday. However, the UK went on to enhance this allowance, requiring employers to provide 5.6 weeks paid holiday per year.


Holiday pay

In a landmark case in 2014, one UK worker took their employer to court over their holiday pay entitlements – arguing that guaranteed overtime was owed during their time off.

Following the case, the Appeal Tribunal confirmed that overtime should be factored into holiday pay calculations. (Where overtime is guaranteed, an employer is obliged to offer it as part of holiday pay; where it is non-guaranteed, if workers are obliged to work overtime it should also be included in holiday pay).

Later, in 2016, the European Court of Justice went on to rule that salary paid as commission must also be taken into account when calculating Statutory Annual Leave.

To put it simply, any overtime worked or commission received prior to leave being taken, should legally be added to your holiday pay.


What could change?

As members of the EU, European Case Law and Directives have significantly influenced aspects of UK employment law; from working time to wages.

When Article 50 is invoked (potentially at the end of 2016), the two year countdown to full withdrawal of the UK’s EU membership begins – at which point, its laws may need to be reviewed.

Until then, it won’t be completely clear just how removed from EU influence Britain will be.


What Brexit could mean for holiday pay

Brexit is unlikely to mean a complete departure from all European Directives – but it will lead to questions being raised around which elements of salary should be included within holiday pay.

As the holiday pay case was decided by the UK Court of Appeal, leaving the EU would have no influence on the fact that overtime must be factored into holiday pay.

However, the amount of overtime worked could be affected.

This is because limits on hours worked and scheduling are set by EU Directives. As a result, a ‘full’ Brexit may mean these are no longer binding.

Commission payments may also still influence holiday pay, as this decision was also made by European Courts.


How could this affect your business?

Once the UK has withdrawn from the EU, British businesses may no longer need to interpret Working Time Regulations to comply with EU Directives. But this is by no means certain.

Whilst this could help create a more flexible workforce, the result could increase business costs once overtime is factored into holiday pay.

Businesses will therefore need to decide whether to set limits on the amount of overtime worked or to create more flexible contracts.

This could allow an increase in the hours workers are asked to be available (although not working); only counting anything outside of this as overtime.


Managing an uncertain future

The significance of managing the difficulties involved in imposing contracts, not to mention maintaining workforce morale, should not be underestimated.

However, with enough pre-warning, businesses have time to consult staff and draw up strategies – good practice, whatever the outcome of Article 50 being invoked.

Ways to minimise any potential risks to your business include:

  • Checking any contractual arrangements or current Trade Union Agreements
  • Ensuring your HR team is up-to-speed with any new legislation that’s introduced
  • Keeping all employees up-to-date with any changes which may affect their entitlements


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