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!