Holiday Pay and Overtime

The Employment Appeal Tribunal (EAT) has reached a decision regarding what pay should be included in Holiday pay, and stated that contractual overtime (i.e. compulsory or non-voluntary overtime) should be included in a normal weeks pay when calculating how much you should pay someone on holiday. However this is with reference to the holidays that are enshrined in the European Directive on holidays not the additional 1.6 weeks that were added to the allowance in 2008.

What is not clear is what period you will have to average the pay plus overtime out over to get a weeks’ pay.

I can feel your eyes glazing over as I write this but put simply the problem is this. Everyone in the UK is entitled to 5.6 weeks holiday a year (which is 4 weeks plus the bank holidays). In European legislation you are entitled to 4 weeks holiday.

A number of cases in European courts and in UK tribunals have held that for the 4 weeks holiday enshrined in European law, workers should receive a normal weeks pay. What the EAT has done is apply the definition of a normal weeks pay to include contractual overtime (commission payments have already been included in a previous case).

Hence for the 4 weeks holiday a year that is enshrined in European law, people who work contractual overtime will have to have that taken into account when being paid holiday pay. The remaining 1.6 weeks holiday are just paid on basic pay (at the moment….).

What is also not clear is how the courts will define genuinely voluntary overtime or if they will decide to just include all overtime even if there is no obligation to work it.

The little ray of good news in all of this is that the courts have restricted the backdated claims to the last three months.

The problem is that the number of grey areas is still high, so expect more litigation. Also in a move which strikes fear in the heart of anyone who craves clarity, the government has decided to set up a task force to decide what to do!

If you currently pay staff overtime give us a call and we will be happy to advise you on the best course of action for dealing with this decision.

On a purely personal note it is not surprising that the unions and workers organisations have sought to get a ruling like this, even if it does cause problems for decent employers who have sought to comply with the working time regulations. The reason for that is that a number of larger employers followed legal advice that told them they could reduce their holiday pay bill by putting workers on short hours and make up the time with overtime. Yet another “cunning plan” that turned out to be not so cunning in the long run!

Don’t end up paying more when staff resign

A client of mine was just opening up her salon for the day when one of her employees came up to her and said she had been offered another job. My client was distracted by a customer who had come in early for a treatment, so when the employee offered to work her notice she just said don’t worry just finish off today if you want.

Two weeks later my client received a call from ACAS ( the government body that deals with employment disputes) saying that the ex-employee had been in touch asking them to mediate in a dispute, as she was about to make a claim for two weeks money from my client for non-payment of holidays and statutory notice.

The employee had accrued three weeks holiday but had only taken 2 weeks off and she had offered to work her notice. The problem is the employee was correct and my client had to pay up. Had my client said “Don’t worry you’ve got some holiday left just take that instead of working your notice” she may have saved herself a week’s money if the employee had agreed to take the holiday, even better she could have insisted that her member of staff take holiday if she had the right clauses in her employment contracts.

So two lesson here

1)      Make sure you have a clause in your contract that states that an employee may be required to use up any untaken holiday during their notice period.

2)      Never say “Don’t bother to come in” to an employee unless you like throwing money away!