17/06/2019

The Employment Appeal Tribunal has been considering holiday pay and how it is worked out for some time. There have been a number of deciding cases which have set out some of the provision’s employers must comply with in order to pay holiday pay correctly.

Overtime

When working out an employees’ holiday pay, employers must consider if the person carries out guaranteed overtime which they are obliged to do.

This could be, for example, where a person could finish at 5pm but if their task is not complete, they are expected to work until the job is done and so could finish their day at 6.30pm. They would be paid for this extra time and as they are expected to work it, this ‘overtime’ should be considered when calculating their pay for holidays.

This work is not something the employer is obliged to offer like the person’s normal workload, but as the employee is obliged to carry out the work, if their holiday pay does not take this payment into account, they are effectively paid less for annual leave than if they are at work. They are likely to be incentivised not to take annual leave as a result.

Case law

  • Bear Scotland Ltd v Fulton and another
    The Working Time Directive (WTD) and Employment Rights Act (ERA) are in conflict. WTD states ‘normal remuneration’, ERA offers ‘week’s pay’ but for those where their pay differs, they could be at a disadvantage as they have no ‘normal remuneration’.
  • British Gas Trading v Lock
    The European Court of Justice held that where a worker’s remuneration includes contractual commission, determined with reference to sales achieved, calculating statutory holiday pay based on basic salary alone is contrary to the WTD.

Currently employers are expected to review the previous 12 weeks’ pay to work out average pay for holiday pay purposes. This will change to 52 weeks from April 2020, due to changes to the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018. This will help where there is a fluctuation in work whereby one 12-week period could be busier than another so employees can again be penalised for taking leave at a particular time.

However, a recent case has widened these provisions further. Flowers v East of England Ambulance Trust looked at pay when staff carry out voluntary overtime on a regular basis.

Before this case, any voluntary overtime was not taken into account for holiday pay purposes. The employee has chosen to work extra and therefore it is not part of the ‘normal’ pay. In the Flowers case, the tribunal decided that if voluntary overtime is sufficiently regular and settled then it should be included when calculating holiday pay.

I can see why the decision was made, if staff carry out the extra work so often that it is almost a given that they work those hours, not to include this in their holiday pay would look like a penalty for taking leave.

If this decision is not appealed, I would expect employers will review their working practices. If staff are doing overtime so often that it is considered part of ‘normal pay’, then maybe the shift patterns need to change. The task of working out holiday pay is complicated enough without staff regularly working over and therefore gaining additional pay during holidays.

For advice about any employment matter, contact Laura Franklin on 01782 205000 or email laura.franklin@beswicks.com