There have been many cases over the past few years concerning the calculation of holiday pay and we know that ‘normal pay’ now needs to include ‘compulsory’ overtime and regular commission payments.
The Employment Appeal Tribunal (EAT) has now decided however that purely voluntary overtime must also be included in holiday pay where this is normally worked. This decision affects the first 4 weeks of annual leave in a leave year and not the additional 1.6 weeks of leave that are granted under UK legislation.
There isn’t a clear definition of constitutes ‘normal’ but it will be where a pattern of work is regular and on a recurring basis.
What does this mean for you?
- You could be at risk of claims for voluntary overtime to be included in holiday pay backdated up to 2 years per employee
- You could be at risk for unlawful deductions from wages if you refuse to pay this
This matter is being widely publicised and you may have employees coming forward who feel they should have voluntary overtime included in their pay calculations. Employees who wish to go to tribunal must make an ‘unlawful deductions claim’ within 3 months of their last holiday.
Claims can be backdated for two years so long as there is not a break of more than 3 months between any holiday taken. A break of more than 3 months between holidays will break the chain of underpayments.
We have recently updated you about the removal of tribunal fees. This makes this decision more troublesome for employers as it may lead to a flood of claims from employees who have not previously received this payment in their holiday pay.
Employers can “make good” a claim by paying any underpayment that has occurred in the past three months and then, going forwards, reduce the risk by including voluntary overtime in the holiday pay calculation.
This decision might be appealed but for the moment it will be binding on any Employment Tribunal decisions.
How you can protect your business
- You should review any arrangements in place and consider which of your team members, if any, regularly works voluntary overtime.
- You should consider if this should be included in your holiday calculations.
- You don’t need to make any immediate changes if you don’t want to (this decision may yet be appealed) but you may wish to make appropriate financial provisions in case you receive any claims for increased holiday pay and / or back payments
If you would like any further advice or support please contact Hallidays HR team on 0161 476 8278 or firstname.lastname@example.org.
Posted 27th September 2017