Category Archives: Annual leave

Sports Direct: Use of Zero Hours Contracts – A Business Model With Exploitation at its Heart? (Part 2)

11578822 - 3d human charcter holding green zero, 3d render, isolated on whiteSUMMARY: The Sports Direct founder Mike Ashley faced the Business Innovation and Skills (“BIS”) Select Committee on 7 June 2016 for an evidence session into the working practices adopted by Sports Direct. A month later, it was widely reported that Sports Direct’s profits had been hit. Mr Ashley’s fortunes have not improved as, at the beginning of this month, it was announced that shareholders will be asked to vote on whether there should be an independent workplace review; and this week it was reported that Sports Direct is to pay £1million to its workers for breaches of the minimum wage legislation.

But how did it come to this?

To recap, Mr Ashley received intense criticism stemming from the Guardian Newspaper’s investigation at the end of 2015, which uncovered allegations that his Company:

1. Failed to pay its workers the minimum wage;

2. Engaged a significant proportion of staff via zero hours contracts and short term hours agency worker agreements;

3. Created a culture of fear throughout its workforce due to arbitrary and outdated disciplinary practices; and

4. Conducted daily physical security searches of employees.

In the first article of a two part series, we deal with the allegation concerning a breach of national minimum wage legislation; the first article can be accessed here.

In this second article, we explore the allegation that Sports Direct sought to increase its profit margins by engaging workers on zero hours contracts and short term hours agency agreements in order to avoid many of the legal obligations of employing staff. We also review the legal considerations that your business should take into account when using either zero hours contracts or being supplied with temporary workers via an agency.

THE ALLEGATIONS

Reports revealed that nearly 80% of Sports Direct’s workers are not employees but, instead, workers engaged via zero hours contracts or short term hours agency worker agreements. During the Select Committee’s evidence session on 7 June 2016, Steven Turner, the Assistant General Secretary of the Unite Union, remarked that this practice has created a “business model that has exploitation at its heart.”

In May 2015 the Government banned exclusivity clauses in zero hours contracts; clauses that prohibit a worker from taking up work under another contract, or which require the worker to get the company’s consent beforehand can no longer be included.

However, alternative work arrangements, specifically the arrangements adopted by Transline and the Best Connection Group, who supply Sports Direct with agency workers, could be placing workers in a worse position compared to if they had been engaged via a zero hours contract post the May 2015 change.

The reason behind this claim is that the Transline and the Best Connection Group do not have an obligation to offer these agency workers any work over and above a minimum of 336 hours over a 12 month period.

However, the agency workers must accept any suitable assignment offered to them unless there is “just cause,” and if assignments are not accepted, it is likely that the worker will not be offered another.

In addition, the workers are effectively forbidden for looking for additional hours elsewhere; workers who have done so have not been offered any further assignments – this is effectively an exclusivity clause in disguise.

WHAT IS A ZERO HOURS CONTRACT?

Zero hours contracts are contracts between a company and a worker and/or an employee, which specifies that the company is not obliged to provide the worker or employee with any minimum working hours, and that the company only pays for work undertaken. Similarly, the worker or employee is not obliged to accept any of the hours offered to them.

CAN ZERO HOURS CONTRACTS STILL BE USED?

Yes, zero hours contracts can still be used by companies.

The change in the law in May 2015 did not ban companies using zero hours contracts completely, instead it prohibits zero hours contracts containing exclusivity clauses.

WHY WOULD A COMPANY USE A ZERO HOURS CONTRACT & WHEN IS IT APPROPRIATE TO DO SO?

The key benefits of a zero hours contract are that a company using these contracts:

  • does not have to guarantee a minimum amount of work, and
  • only pays for work undertaken.

This is useful if your company is a start-up business and you are unsure of your people requirements. Alternatively, zero hours contracts may be useful if a company wishes to engage staff for seasonal work, or to cover absence and holidays.

The other benefit to companies is that the relationship between the company and the worker does not have to be one of employment. However, the worker will still benefit from the right to receive the National Minimum Wage, paid annual leave, rest breaks and will be protected from discrimination.

WHAT SHOULD THE BUSINESS CONSIDER WHEN ENGAGING AGENCY WORKERS?

If like Sports Direct, your company is supplied with workers via an external agency, you should be very clear as to the employment status of these workers because this will affect their rights.

Usually, the arrangement dictates that workers supplied by an agency are classed as workers of the end user client and not as their employees.

From day 1, agency workers are entitled to access to collective facilities (such as canteen facilities, child care facilities and transport facilities) and access to information about employment vacancies. Agency workers are also entitled to take rest breaks, receive the National Minimum Wage, receive Statutory Sick Pay (if they satisfy the relevant qualifying conditions set out in the legislation), take paid annual leave and benefit from protection against discrimination.

Following 12 weeks with the Company, agency workers are entitled to receive the same pay and other basic working conditions as equivalent permanent staff; this can include the auto enrolment pension obligations.

This is a relationship which often gives rise to uncertainty of employment status and, consequently, there are many reported cases on this very issue. Companies are therefore advised to ensure that, when engaging agency workers, they have in place the appropriate documentation with both the agency supplying the worker and the agency worker.

COMMENT:

Exclusivity clauses in zero hours contracts, which could exploit the most vulnerable of workers, are now unenforceable. However, this protection does not address the real issue for zero hours workers, which is the practice of ceasing to use workers who have turned down an assignment because they have accepted an alternative assignment and are unavailable.

In addition, as is evident from the Sports Direct review, Companies are now taking advantage of other working models such as the arrangements adopted by Transline and the Best Connection Group; although these arrangements are not prohibited by law, they raise questions of morality.

Only time will tell if the ongoing review by the BIS Select Committee will result in recommendations for change. In the meantime, we would recommend carrying out a review of the arrangement that your Company adopts for the supply of its staff to ensure that any legal obligations are being met.

CONTACT DETAILS:

If you would like more information on this topic or would like to discuss a specific concern in relation to your business, please contact us:

Call: +44 (0) 808 172 93 22     Email: fgmedia@fgsolicitors.co.uk

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

The Rio Olympics Are Approaching…What Should Employers do to Prepare?

22444484 - sport icons on computer keyboard buttons original illustrationThe countdown to the Olympics is now in earnest with the opening ceremony just a few days away. Over the coming weeks 306 events are scheduled to be held in Rio. If they have not done so already employers should be considering the potential effects of this four yearly event on their business.  A key priority is ensuring employee attendance. Unlike the 2012 Games in London, few employees will have tickets, but many will intend to watch the Rio Games on the television or internet.

What can employers do to prepare?

  • Decide on a policy for dealing with annual leave requests during the period the Games are on.  If the normal holiday request procedure is to apply, employers should remind employees of this.  If new procedures are to be put in place which simply cover the period the Games run for, highlight these to employees and ensure they are applied consistently.
  • Issue a general reminder of the absence notification/management procedures. That reminder to include a warning that employees could be subject to disciplinary procedures if they are not genuinely sick but provide sickness as the reason for their absence.  Absence levels should be closely monitored to enable the early identification of any high levels of sickness absence.
  • Flexible working may be a consideration which may enable employees to come in later or finish earlier. Considerations can also be given to whether employees can be permitted to swap shifts. Any flexible working arrangements should be carefully handled and recorded to ensure consistency of treatment and to ensure they run for the duration of the Games only.
  • Consider making available a television in a communal area to permit employees to view the Games at work.  This could offer an alternative to employees tempted to either “pull a sickie” to watch the games or to view them at work on the internet.  A number of employees simultaneously watching the games via an internet connection could cause disruption and negatively impact business continuity.  If making a communal television available, employers should highlight that employees will be expected to make up the time spent viewing the Games.
  • There may be an increased use of Social Media such as Facebook or Twitter or websites covering the Games. Employers should ensure that they have a clear policy regarding web use setting out that monitoring will take place, what use is permitted and what the likely sanctions are for a breach of the policy.

In summary…

In aiming for business continuity, it makes sense for employers to be:

  • Flexible – in altering working hours to accommodate viewing
  • Clear – in relation to expectations of leave requests, absence and performance
  • Communicative – discuss these matters with employees as soon as possible and continue to remind them of policies as the Games approach
  • Fair and Consistent  – in particular with respect to the way in which requests for time off are dealt with

Contact Details

If you would like more information or advice on business continuity planning for the Games, absence management or disciplinary procedures please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

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

Commission Payments Add Value to Holiday Pay!

FG Solicitors - Holiday Pay CommissionSUMMARY: Employers will need to take into account commission payments when calculating holiday pay.

The Employment Appeal Tribunal (“EAT”) has handed down its decision in the case of British Gas Trading Limited v Mr Z J Lock & Secretary of State for Business, Innovation and Skills.

The issue for the EAT, in the Lock case, was whether holiday pay must take into account elements of normal pay such as commission. In October 2014, the EAT was already scrutinising how employers calculated holiday pay and ruled in Bear v Fulton that employers must take into account non-guaranteed overtime payments when calculating pay for the basic four week holiday entitlement under regulation 13 of the Working Time Regulations 1998. Unsurprisingly, in Lock, the EAT has decided that workers’ remuneration for annual leave periods must also include both commission and basic pay, if this is what they are normally paid.

The Law:

Under the Working Time Regulations 1998 (“WTR”) all workers have a statutory holiday entitlement of 5.6 weeks’ annual leave and they are entitled to be paid at the rate of a week’s pay for each week of statutory holiday. This entitlement is pro-rated for part-time workers.

The WTR derives from the European Working Time Directive (“WTD”), however, the WTD only entitles employees to 4 weeks’ holiday, which is 1.6 weeks’ less than the WTR entitlement.

The Facts of the Lock case:

Mr Lock, who was employed by British Gas as a salesman, had a remuneration package that included a basic salary plus commission which was based on the number and type of contracts he persuaded customers to enter into.  However, the remuneration that he received when he took holiday consisted of basic salary and any commission which he had earnt prior to his leave commencing but that fell due during his period of holiday. This meant he could not earn commission when he was on leave and, as his basic pay was significantly less than his normal pay, this was a disincentive to take annual leave.

In April 2012, Mr Lock claimed to an Employment Tribunal (“ET”) that the failure to pay him commission for the period that he was on holiday leave was contrary to the WTR. As the WTR derive from European law, the ET referred the matter to the Court of Justice of the European Union which ruled that the WTD provides that results based commission should be taken into account when calculating holiday pay. The ET subsequently held that the WTR could be interpreted so as to include commission payments in the calculation of holiday pay for the four weeks’ annual leave provided by Regulation 13 of the WTR.

The ET’s decision was appealed by British Gas. The EAT dismissed the appeal.

Implications for businesses:

  • If workers’ remuneration ordinarily comprises basic pay and commission businesses will need to calculate holiday payments for a worker’s 4 weeks’ statutory holiday entitlement (pro-rated for part-time workers) so that it includes commission which would have been earned but for the taking of leave.
  • Businesses may choose to pay the remaining 1.6 weeks’ statutory entitlement excluding commission, which would have been earned but for the taking of leave.
  • Failure to include commission when calculating holiday pay for the 4 weeks’ entitlement means the worker may apply to the ET for any underpayments provided that the claim is made within 3 months of that underpayment being made. If a claim involves a series of underpayments, any claims for the earlier underpayments will fail if there has been a break of more than three months between such underpayments.
  • Any claims presented to the ET for a series of backdated deductions from wages, including any shortfall in holiday pay, will be limited to cover a period of a maximum of 2 years.

British Gas Trading Limited v Mr Z J Lock & Secretary of State for Business, Innovation and Skills UKEAT/0189/15

Contact Details

For more details about the issues in this article or if you would like advice on how to calculate holiday pay, please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

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

On the 6th Day of Christmas…

6th Day of ChristmasOn the 6th day of Christmas my employee said to me ….. “I have to leave on time to get to my evening job; I’m trying to earn some extra money for Christmas.”

Whilst the worker’s keenness to fill up the Christmas stockings of their loved ones is admirable, the fact the worker has another job should trigger warning bells.

One such warning bell is the 48 hour working week limit imposed by the Working Time Regulations 1998 (“WTRs”) – employers are responsible for ensuring workers do not work more than an average 48 hours per week, unless they have signed an agreement opting-out of this limit. In calculating the 48 hour week, any time spent working for other employers must be taken into account.

Therefore, employers presented with the information about another job, should consider asking the following questions:

  • Could the worker be working more than 48 hours per week?

First review the contract of employment to identify the contracted hours; the overtime records should also be reviewed.

The worker should also be asked to provide details of all other hours worked for other employers. The total hours worked by the worker can be identified using this information.

  • Has the worker signed an opt-out?

If it appears that the worker will work more than 48 hours per week it is necessary to have an opt-out in place. Records should be kept of opt-out agreements that are in place. It should therefore be easy to clarify whether the worker in question has signed an opt-out.

  • What if there needs to be an opt-out?

If the worker is likely to work more than 48 hours per week they should be given the choice of either:

    • Entering into an opt-out agreement. The agreement must be in writing and entered into voluntarily.  An opted out worker can cancel the opt-out on seven days’ notice unless the agreement expressly provides for a longer notice period, which cannot be longer than three months.  The worker cannot be forced to sign an opt-out and it is unlawful to dismiss or victimise a worker for refusing to sign an opt-out.
    • Reducing their combined working time to less than 48 hours per week.

It is crucial for employers to get this right otherwise they are committing an offence under the WTRs if they fail to take reasonable steps to ensure their workers do not work more than 48 hours a week unless they have opted-out. An effective way of discharging this obligation is the inclusion of secondary employment clauses in contracts of employment and/or policies which should be clearly communicated, monitored and enforced.

In addition to the 48 hour week obligations, employers must not forget that worker are still entitled to daily, and weekly rest breaks as well as annual leave.

Contact Details

For more details about the issues in this article please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

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

On the 4th Day of Christmas…

4th Day of ChristmasOn the 4th day of Christmas my employee said to me… “I can’t get to work because of the snow.”

Although unseasonably mild now, chances are some parts of the country will experience travel disruption due to snow over the coming months and operational efficiency may be significantly affected if staff cannot get to work.

Proactive employers should develop a strategy for responding to this possibility which should include the following key considerations:

  • Health and safety

Health and safety may be called into question where employees indicate that it is too dangerous to travel but are required to continue with their journey and, as such, should not be ignored. Employers need to be aware that employees are protected from detrimental treatment and dismissal for raising concerns on health and safety grounds; raising such concerns could also trigger protection under the whistleblowing legislation.

  • Pay

Usually if an employee is unable to get to work there is no automatic right to be paid. However, before deciding this, existing contractual, collective or custom and practice arrangements already in place need to be considered to establish what rights employees have in relation to pay in such circumstances. Equally, if employees have to be sent home as it is not practicable or safe for the business to remain open, those employees with contractually guaranteed hours or salary will still have the right to be paid unless the contract provides otherwise.

Employers should always check for appropriate clauses in contracts before deducting pay for non-attendance.

  • Flexibility

Taking a flexible approach to working hours and the place of work may be a possible solution for some employers, examples of possible approaches include:

  • homeworking;
  • allowing employees to work at another site, which is more easily accessible;
  • allowing staff to make up the missed hours;
  • treating the time as annual leave; or
  • offering time-limited paid leave.

This approach will however need careful planning and communication to avoid future pitfalls.

Whatever your business strategy, planning ahead will be key to minimising business disruption and at this stage it may be useful to involve employees in the process as they too could provide valid solutions to the problem.

Contact Details

For more details about the issues in this article please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

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

On The 3rd Day of Christmas…

3rd Day of ChristmasOn the 3rd day of Christmas, my employee said to me… “I need to leave early tonight to go and watch my child’s nativity play.”

The following factors should be considered by an employer before deciding whether to refuse a request to allow an employee to leave work early to witness their child’s BAFTA performance:

  • The employee has no automatic right to leave early in these circumstances unless the contract of employment provides for this; and special care and attention should be given to those contracts which include flexi-time or time off in lieu arrangements. Otherwise, the employee is likely to have to rely on the employer’s goodwill, a special leave policy or take annual leave, with the latter being the most likely option.
  • Employees have a statutory right to annual leave and may ask to take the leave as holiday.
  • If an employer operates a “leave policy” (in the contract of employment or staff handbook) requests not made in accordance with the policy can be more readily rejected. For last minute leave requests, the most obvious reason for rejecting it is that the employee has given insufficient notice.
  • If the request is rejected, it is prudent for a number of reasons and not least from a staff morale perspective, to provide the employee with an explanation.
  • Employees may take sick leave if the request is refused. Therefore an essential tool in managing this scenario is a publicised absence management procedure, which includes reporting requirements and back to work interviews.

The employer may however exercise their discretion and agree to the request. In this instance an employer should be mindful that all such similar requests should be dealt with fairly, consistently and in a non-discriminatory way. It is also advisable that, by exercising a discretion, it is made clear to the employee that it is not intended to create any future rights. The employee should also be notified and agreement obtained if one of the following is proposed:

  1. the leave is to be unpaid;
  2. the annual leave entitlement is to be adjusted to reflect the time taken; or
  3. the time will need to be made up.

Contact Details

For more details about the issues in this article please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 808 172 93 22

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

Carrying over holiday entitlement when on sick leave – how much and when?

HolidaysSUMMARY: In the recent case of Plumb v Duncan Print Group Ltd UKEAT/2015/0071, the EAT dealt with the issue of a sick worker’s right to carry over holiday entitlement.

Holiday is a hot topic for employers – recent decisions on holiday pay have led many employers to re-think how overtime could be taken into account in such payments.

However, an equally vexing problem which employers need to solve is how to deal with the holiday entitlement of those workers who are on sick leave. The EAT considered this in the recent case of Plumb v Duncan Print Group Limited.

Background

As a reminder, there are the following important principles to take into account when considering a sick worker’s entitlement to annual leave:

  1. Workers are generally only entitled to take annual leave in the leave year in respect of which it is due. For example, if the leave year is between January and December, an employee must take all of their annual leave entitlement by the end of December.
  1. An exception to the principle in point 1 is that annual leave may be carried over where the worker was unable or unwilling to take annual leave because he was on sick leave and as a consequence did not exercise his right to annual leave. The worker does not have to have made a request for annual leave in order to carry it over.
  1. On termination of employment, if the worker is entitled to annual leave in respect of any previous leave year which was carried over because of sick leave, the employer should pay the worker in lieu of that annual leave.

When considering carrying over annual leave, we are only referring to carrying over the 4 weeks of annual leave that a worker is entitled to under the (European) Working Time Directive, not the additional 1.6 weeks that a worker is entitled to under the (British) Working Time Regulations or any additional contractual annual leave.

Where clarity was required

There were 2 areas which needed clarity:

  1. How far back should a payment in lieu of holiday go on the employment ending?

In relation to point 3 above, it is clear that a worker should be paid in lieu for holiday they were unable to take because of sick leave.  What was not clear before this case, was how far back a worker could claim holiday for.  To take an extreme example, if they had been off sick for 5 years and had not taken any holiday, if their employment was terminated in the sixth year, could they claim a payment in lieu of all the 5 years of holiday they had been unable to take?

  1. Should a worker unwilling but able to take annual leave be entitled to carry over holiday?

Another point which required clarity was whether a worker who was unwilling to take annual leave during sick leave should be permitted to carry it over, even if he would have been physically able to take the annual leave during the sick leave period, had he chosen to do so.

Facts of the case

Mr P (the employee) was on sick leave between 26 April 2010 and 10 February 2014, when his employment terminated.  Mr P did not take or request any holiday until summer 2013 when he requested permission to take all of his accrued holiday from 2010 onwards.  The employer agreed to pay for accrued holiday for the current leave year (2013/2014) but refused to pay for untaken holiday for the previous 3 leave years.  The leave year ran from 1 February to 31 January.

Mr P brought a claim for payment in lieu of untaken leave for the 2010/2011, 2011/2012 and 2012/2013 leave years. The employment tribunal dismissed his claim and he appealed to the EAT (Employment Appeal Tribunal).

Decision

The EAT allowed Mr P’s appeal in respect of accrued leave for the 2012/2013 holiday year (i.e. he would be entitled to a payment in respect of these years), but dismissed his appeal in respect of accrued leave for the previous two holiday years.

The EAT made it clear that:

  • Sick workers can carry over untaken holiday leave for 18 months after the end of the leave year.
  • Sick workers are not required to demonstrate that they are unable to take their holiday.  They can choose not to take holiday during sick leave.

What does this mean for employers?

  • Employers now have more clarity on how much annual leave an employee can carry over from previous years.  Taking the example given earlier, an employee on the termination of their employment would not be entitled to payment in lieu of annual leave for the entire 5 years they had been off sick.  They could only carry over untaken holiday leave for 18 months after the end of the leave year and on termination would be entitled to a payment in lieu of this holiday.  A practical example of this would be:
    • The leave year runs between 1 January and 31 December.
    • Mr A has a full time contract and is off sick from 1 January 2010 until his dismissal on 1 January 2015.
    • Mr A has not taken any annual leave in this 5 year time period and his contract of employment does not state anything about carrying over annual leave.
    • Mr A would be entitled to a payment in lieu of 8 weeks annual leave on the termination of his employment.  This relates to the annual leave for the leave year ending 31 December 2013 and for the leave year ending 31 December 2014.
  • Employers should check their contracts of employment in relation to the carry-over of holiday entitlement.  If employers allow more carry-over of annual leave than is necessary, employers may want to amend these contracts.  Contracts should also not set out that carry-over of annual leave is never permitted.
  • Employers should permit workers to carry over untaken annual leave while they are on sick leave even if they consider that workers would have been able to take this annual leave had they chosen to do so. Whether to take annual leave during sick leave is a decision for the worker and they are entitled to choose not to take the annual leave even if they would have had the ability to take it.  They are also not required to request the annual leave if they wish to carry it over.

Cases

Plumb v Duncan Print Group Ltd UKEAT/2015/0071

Contact Details

For more details about holiday leave entitlement and its interaction with sick leave please contact:

fgmedia@fgsolicitors.co.uk

+44 (0) 1604 871143

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

Holiday Pay Seminar: 5 February – FAQs

Holiday Pay Seminar – FAQs

Holiday Planning

Q: I pay a car allowance of £500 a month on top of a salary of £2,000 a month to my employees.  Do I have to take the car allowance into account when calculating holiday pay? 

A: You would carry on paying the car allowance while the employee is on holiday as this is a normal contractual benefit. However, you would not take it into account twice when calculating the holiday; you would continue to pay £2,500 per month as you are already paying the allowance.

Q: We have an employee who is off on long term sick leave and living in Poland.  How can we manage this absence? 

A: You should try to keep in contact with the employee as much as possible. You should ask them for a fit note/medical certificate from a Polish medical professional and if necessary get it translated. These should be kept up to date. If they are unable to travel back to the UK for absence reviews, you should consider conducting these over the telephone or in writing. Please be aware that a fit note from a doctor outside the UK is evidence of the employee’s ill health. HMRC may arrange translations into English where you disagree with your employee on their SSP entitlement.

If unsure, you should take advice.

Q: We ask employees to reserve 3 days of their annual leave for the Christmas shutdown.  One employee put in a fit note the day before their annual leave, covering them for this period.  Do they have the right to take this annual leave at another time?

A: They may do. It depends upon your policies, how much holiday they are entitled to and when the holiday year starts and ends.  If they are only entitled to statutory holiday pay (28 days including bank holidays) then they are more likely to be entitled to take it at another time. If:

  1. they are entitled to contractual holiday (for example they are entitled to 31 days per year); and
  2. these 3 days are the last of the holiday year, which ends at the end of December and as such fall outside the statutory entitlement; then, depending upon your policies, there may be an argument that they are not entitled to take this holiday at another time.

Q: Is the law in force now in relation to taking into account overtime when calculating holiday pay?

A: Yes, it is in force. The case law is an interpretation of European legislation and UK regulations which were already in force.

Q: You said that there should be regulations coming into force in July 2015 in relation to limiting the amount of time employees can go back to claim unlawful deductions from wages (a backstop period).  Will this be retrospective and therefore get rid of any historical liability?

A: The new backstop period will apply to claims presented on or after 1 July 2015. The current law will apply to claims brought before this date.

Q: I am confused about what types of overtime should be taken into account when calculating holiday pay.  Can you help?

A: Please see the table below which sets out guidance for which types of overtime should be taken into account in the holiday pay calculation.

Type of Overtime Description Include?
Compulsory/ Guaranteed • Must be worked
• Regularly required
YES
5.6 weeks
Non-guaranteed • Regularly required
• Cannot be unreasonably refused
YES
4 weeks
Voluntary • Regularly worked YES – ?
Review all circumstances
Voluntary • Occasional
• Irregular
NO

Statutory Holiday Pay Must Include Overtime

.

SUMMARY: An Employment Tribunal holds that holiday pay should include overtime payments in respect of 4 weeks’ annual leave.on holiday

Background

Mr N worked as an operative and his employment contract provided for a 35-hour week consisting of seven-hour shifts.  However, it stated that he “may be required to work overtime when necessary”.

Mr N actually worked 8.5 or 9 hour shifts (as set out by the roster) and occasionally 12-hour shifts to cover for colleagues.

Mr N’s employer paid him basic pay (i.e. 35 hours a week) for his annual leave.  This basic pay did not include any allowance for overtime.

Mr N claimed for his holiday pay in accordance with the Working Time Directive (which refers to 4 weeks’ holiday, rather than the full 5.6 week entitlement required by UK law) to be calculated with reference to all the hours that he worked, including weekend work, night work and overtime.

The Employment Tribunal’s decision

The Employment Tribunal upheld Mr N’s claim.

The Employment Tribunal referred to recent case law and in particular the notion that a worker’s entitlement to receive normal remuneration during annual leave is so that he is in a position as regards remuneration which is comparable to periods of work.

The Employment Tribunal indicated that it did not matter that Mr N might have volunteered to undertake the overtime, commenting that the employer controls the terms upon which work is offered at the outset of employment and subsequently with regard to overtime.  This meant that an employer could prevent excessive hours being worked.

Mr N was able to claim back to 2007 for arrears of holiday payment.

What does this mean for employers?

Employers should calculate holiday pay, for at least 4 weeks of the employees’ annual leave entitlement, to include overtime and/or other allowances that the employee is usually paid.  This includes voluntary overtime.

If employers do not calculate holiday pay in this way, there is a risk that an employee will bring a claim for unlawful deductions from wages, seeking the difference between their holiday pay paid and the amount they should have been paid if other allowances had been included in the calculation, going back for a period of up to 6 years.

If employers carry this out for only a 4 week annual leave period, this may of course, be an administrative nightmare, so employers may decide to calculate the whole amount of any holiday pay to include all other allowances.

However, employers should also bear in mind that this was only the decision of an Employment Tribunal and it may be that the Employment Appeal Tribunal or Court of Appeal would have a different view on the matter.  This case is unlikely to be the final word on this subject.

Case: Neal v Freightliner Ltd ET/1315342/12

Hazel Robbins, Solicitor

 

Contact Details

For more details about this case or calculating holiday pay please contact:

fgmedia@floydgraham.co.uk

+44 (0) 1604 871143

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