Should Overtime Count in the Calculation of Holiday Pay?

05 November 2014

Issues arising from the English Employment Appeal Tribunal's recent clarification on the appropriate calculation of holiday pay in relation to overtime / non-guaranteed income

Should overtime count in the calculation of holiday pay?

Yesterday the Employment Appeal Tribunal (EAT) in England provided further clarification on the appropriate calculation of holiday pay in the conjoined cases of Bear Scotland Limited v Fulton and Baxter, Hertel (UK) Limited v Wood and others, and Amec Group Limited v Law and others.

The EAT’s decision confirms that ‘non-guaranteed overtime’ can fall within the definition of “normal pay” set out in the EU Working Time Directive and therefore should be included in the calculation of a worker’s holiday pay.

Non-guaranteed overtime means overtime which an employer is not obliged to offer but which, if offered, a worker is contractually obliged to accept. This type of overtime is separate and distinct from voluntary overtime which was not the subject of the case before the EAT.

In his decision the Honorable Mr Justice Langstaff commented that “Normal pay” ‘is that which is normally received’. By way of helpful guidance he went on to clarify that such a payment ‘has to be made for a sufficient period of time to justify that label. In cases such as the present, however, where the pattern of work is settled, I see no difficulty in identifying “normal” pay for the purposes of European Union Law Article 7 requires and required non-guaranteed overtime to be paid during annual leave.’

Please note that this ruling only applies to the four weeks’ annual leave provided by the European Working Time Directive, and not to the additional 1.6 weeks’ leave granted in the UK by the Working Time Regulations.

This is a very important judgement which further extends the scope of calculation of holiday pay from the guidance previously provided by the European Court of Justice in British Airways Plc v Williams and the Court of Justice of the European Union in Lock v British Gas Trading Ltd.

Claims for unlawful deductions of wages for underpayment of holiday pay must be made within three months from the date of the deduction, or from the last in a series of deductions.Employers concerned about the risk of claims arising from previous underpayments to employees will be relieved to notethat the EAT has ruled that where there is a gap in the chain of under payments of more than three months, the deductions cannot be said to form part of the same series. This aspect of the EAT’s decision is likely to limit the extent and value of potential back dated claims.

Although this is an EAT judgement and therefore not binding in Northern Ireland, employers here should take note of this decision as it is likely to prove persuasive to the Industrial Tribunal in this jurisdiction. It is however widely anticipated that this judgement will be referred to the Court of Appeal and as such it may be some time before the issue of calculation of holiday pay is resolved.

For more information and advice in relation to calculation of holiday pay please contact Worthingtons and ask to speak with a member of the Employment department 01890434015 or complete the form below:-

Contact Us

Do you wish to receive future marketing info?

Newsletter Signup