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Holiday Pay and Overtime

By Peninsula HR

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Am I affected by the ruling on holiday pay and overtime?

The recent Employment Appeal Tribunal ruling on holiday pay and overtime has been overhyped by the media, with scaremongering suggesting that all overtime should be reflected in holiday pay for any leave taken. This is not the case. Below sets out a few general questions on this ruling.

Q. What type of overtime does this apply to?

The ruling only applies to “normal non-guaranteed overtime”. This is where the employer is not obliged to offer the overtime but when offered the employee is obliged to take it and this occurs regularly enough to be seen as a normal pattern of work. A simple way of checking whether this is the type of overtime you offer is by asking: when overtime is offered and an employee declines to work it, do you consider it to be a rule break? Overtime which is contractually guaranteed by the employer, where the employee must do it, is not covered by the judgment but it has always been the case that this should be included in holiday pay. Purely voluntary overtime is not covered by the judgment, and it is not necessary to include this in holiday pay.

Q. Will I have to start paying more for future holidays?

If the overtime you offer is “normal non-guaranteed” then you may decide to pay this for future holiday in order to cancel out any risk of a claim. But, bear in mind, that the ruling restricts this to the first 4 weeks of holiday entitlement as required under EU law. Any holiday taken in excess of the 4 weeks should be paid at basic rate (the minimum required to be given is 5.6 weeks).

Q. Will I break the law if I don’t pay more?

This ruling is from the Employment Appeal Tribunal - the law has not been amended. There is a chance that the decision will be appealed so more clarity could be many months away. Keeping pay practices the same until an appeal will not technically break the law but could risk tribunal claims which the employee could win because EAT judgments must be followed by Employment Tribunals.

Q. Will I have to pay out for past holidays taken?

Firstly, you need to check your employee’s holiday records. If any employees have taken holiday within the last three months and the holiday they have taken falls into the first 4 weeks of holiday they are entitled to in the year, then they are within the time limit to bring a tribunal claim for an ‘unlawful deduction’. However, if it is more than 3 months since the end of their first 4 weeks of holiday, or they have not taken any at all holiday within the last 3 months, then they are out of time to make a back pay claim. 

Even if the employee has taken holiday within the last 3 months, a cut off point could have been created further down the line.The rules on back pay are complicated but if there is a gap of 3 months where no holidays have been taken, or no holidays have been taken which fall into the first 4 weeks of their entitlement, then back pay liability will be cut off at that point.

Every employer will be affected differently by this judgment so individual advice is required.

Published November 2014