Category Archives: Holiday Pay and Overtime

STOP PRESS: Overtime = Holiday Pay

FG Solicitors Stop PressEmployment Appeal Tribunal (“EAT”) Hands down Judgment in Relation to Holiday Pay

Broadly, the appeal involves a determination of the meaning of ‘normal remuneration’ in a number of cases. The European Directive provides that employees are entitled to be paid ‘normal remuneration’ during holidays to which they are entitled under EU Law. This has been interpreted to mean their typical average pay and not only basic pay.

By comparison, the UK law entitles employees with normal working hours to receive basic pay only during any period of holiday.

The conclusion of the EAT in this appeal is that employees are entitled to be paid their average earnings. So by way of example, overtime payments would be accounted for in calculating an employee’s holiday pay.

Potentially, a significant number of UK workers, who have historically received basic pay only, may now have claims for unlawful deduction of wages given that the employers’ appeal in this case has failed.

The employers’ appeal to the EAT has however succeeded on the issue of how far back employees can claim. The position now appears to be that if there is a gap of more than 3 months in any claimed series of deductions, the Employment Tribunal will lose its jurisdiction to hear claims for the earlier deductions.

More to follow…

Cases:

Bear Scotland Ltd v Fulton and Baxter

Hertel (UK) Ltd v Wood and Others

Amec Group Ltd v Law and Others

Please contact FG Solicitors for further information on what employers should be doing now.

fgmedia@fgsolicitors.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice. 

Holiday Pay and Overtime

HolidaySUMMARY: The EAT is due to consider 2 cases in relation to whether overtime  payments should be taken into account when calculating holiday pay on 30 and 31 July 2014.

Legal Background

Employees are entitled to be paid at the rate of a week’s pay in respect of each week of annual leave to which they are entitled in relation to their statutory 5.6 weeks’ (or 28 days’) holiday entitlement (to include public holidays).

A week’s pay is either:

  1. The normal rate of pay, if the employee’s hours or pay for amount of work done does not vary; or
  2. The average remuneration over the previous 12 weeks if the employees’ hours or remuneration due to the time that they work (shift work) or the amount of work done (piece work), varies.

Where a worker does not have normal working hours (for example, they do not have to work a minimum number hours per week), their holiday pay should be calculated to include any overtime payments and commission earned in the past 12 weeks (and then averaged).

This update considers the position in calculating holiday pay in relation to the first category of employees (those with normal working hours).

There are a number of cases which deal with the issue of overtime payment and holiday pay where an employee has normal working hours.  Whilst guidance is given, there is no definitive position as to whether overtime should be taken into account when calculating holiday pay.

Original indications that it is not necessary to take overtime into account

It has been thought that only overtime that is obligatory on both sides (ie the employer is obliged to provide it, and the employee is obliged to work it) constitutes part of the worker’s normal working hours. This triggers the right for it to be taken into account for the purposes of holiday pay.

A Court of Appeal case (Bamsey and ors v Albon Engineering and Manufacturing plc 2004) held that where an employee works compulsory, but not guaranteed, overtime, they are not entitled to be paid an equivalent amount during the holiday period, but just their contractual hours.

An employment contract might state whether overtime is guaranteed or not.  If the contract is silent (or if the reality contradicts the contract) as to overtime being guaranteed, if employees are regularly working overtime, it could be argued that a contractual term has been implied into the contract that overtime is part of their normal hours (and therefore should be taken into account when calculating holiday pay).

More recent cases

It is now however doubtful whether this case (Bamsey) is compliant with EU law and an ECJ decision (British Airways plc v Williams and ors) suggests that supplementary payments should be maintained during annual leave to the extent that they are “intrinsically linked” to the performance of contractual duties.  In principle, such payments might include bonuses, commission, overtime pay, performance-related pay, call-out supplements and anti-social hours allowances.

A recent Employment Tribunal decision has followed the ECJ decision on this point (Neal v Freightliner Ltd).  This case suggests that overtime should be taken into account in calculating holiday pay even where it is voluntary as opposed to compulsory.  It only applies to the first 4 weeks of annual leave.  It should be noted that this is only an Employment Tribunal decision and not binding.

An Employment Tribunal in Scotland also came to a similar decision (Fulton and anor v Bear Scotland Ltd).

However, an employment judge took a different view in Elms v Balfour Beatty Utilities Solutions Ltd.  The judge held that a worker’s holiday pay could be calculated with reference to his basic pay for his 40 “normal working hours” a week.  Overtime payments, standby payments and bonus payments did not need to be taken into account.

The Neal v Freightliner Ltd case and the Scottish case are due to be heard by the Employment Appeal Tribunal (EAT) on 30 and 31 July 2014 (originally these were scheduled for 10 April 2014).  However, the judgment may be delivered on a later date.

Current position

Where overtime is both compulsory and guaranteed it should be taken into account when calculating holiday pay.

However, as you can see, there is significant uncertainty as to whether overtime should be taken into account in other instances when calculating holiday pay, where an employee has normal working hours.  The EAT case in July may resolve this.

In the meantime, employers who are considering whether to take overtime into account should take legal advice.  On the one hand, taking overtime into account may reduce the risk of unlawful deduction from wages claims, on the other it may create an unnecessary contractual entitlement to overtime being taken into account in the future.

If employers await the EAT’s judgment, they should bear in mind that the hearing date could change again, the appeals could be withdrawn, the judgment may be delivered some time after the hearing, and the judgment may be appealed.

Contact Details

For more details about calculating holiday pay please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 1604 871143

This update is for general guidance only and does not constitute definitive advice.