Expert Opinion: Consider your overtime and holiday pay arrangements
This week, a much awaited Employment Appeal Tribunal judgment was delivered in relation to overtime and holiday pay calculations. The judgment confirms that workers who do regular compulsory overtime should have that overtime included in their holiday pay calculations.
The cases in question, Hertel v Wood, Amec v Law and Bear Scotland v Fulton, were all appealed Employment Tribunal decisions. In each case, the employees had normally and regularly worked compulsory overtime, even though the overtime was not guaranteed.
The claims related to holiday pay and the fact that the 4 week period of holiday guaranteed by the Working Time Regulations does not reflect any element of “regular overtime worked by the employees”.
Overtime and holiday pay calculations are not the only issues that have been reported in the press in recent months. There have been European judgments in relation to holiday pay to include regular commission (Lock v British Gas) and allowances for time spent away (British Airways v Williams).
The key concept from the European Courts in Lock being that if commission is “intrinsically linked” to the performance of tasks under the employment contract, it should be taken in to account when calculating holiday pay.
In light of the recent judgments, this is a sensible time to consider your holiday pay arrangements and calculations. In essence, you should ensure that employees who receive regular overtime or commission payments are not subjected to a disadvantage by taking holiday.
In summary the key points emerging from the recent judgments are as follows:
- Workers are entitled to be paid during their annual leave a sum of money which reflects regular non guaranteed compulsory overtime.
- It is limited to the 4 weeks annual leave entitlement under the European Working Time Directive and does not extend to the additional 1.6 weeks provided for in the UK Working Time Regulations.
- There was concern that employees would be able to bring claims going back over a long period for holiday pay which wasn’t calculated by reference to overtime. On this point the court said that if there was a gap of more than three months since the holiday pay, the passage of time had broken any series of underpayments leaving the employee without a remedy.
- Travel time payments which exceed expense payments, and therefore amount to taxable remuneration, should also be reflected when calculating holiday pay.
By communicating with your work force that your business intends to address the holiday pay calculations to include overtime, you are likely to deter a number of employees from bringing claims and clear up any confusion.
Malcolm Gregory is a partner at Withy King in Swindon, where he specialises in employment law. Contact him on 01793 401052 or at email@example.com