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Holiday Pay and Overtime

14 Jun 2017

There has been a flurry of cases in recent years which have impacted upon workers’ entitlement to holiday pay.  

 

Following a series of decisions of the ECJ, most notably HMRC v Stringer [2009] IRLR 214 ECJ, it is now settled law that workers continue to accrue holiday pay while on long-term sick leave and can nominate a period of sick leave as holiday pay should they wish to do so. More recently, decisions handed down by the EAT and ECJ have affected the basis upon which holiday pay is calculated.

It has long been the case that, where workers do not have normal hours or their pay is based upon work done (piece work) then holiday pay should be calculated based on average pay over the previous 12 complete weeks of service, including any overtime and commission. For those employees with normal working hours however it was, and for some employers remains, common practice to pay only basic pay during holiday leave. In other words, if an employee normally worked a 40-hour week he would be paid for only those 40 hours while on leave and any overtime or commission which he earned during the previous 12 weeks would be disregarded for the purposes of calculating holiday pay.

 

Following decisions in the EAT and ECJ, it has been held that workers who have normal working hours should be given credit for the following when calculating holiday pay:

  • Overtime guaranteed under the contract of employment.

  • Non-guaranteed overtime which is worked a sufficient time to be deemed ‘normal’.

  • Bonuses and commission linked to the performance of tasks which a worker is required to perform under the contract (for example sales commission or a productivity bonus).

The case of Brettle and ors v Dudley Metropolitan Borough Council, [2016] Birmingham ET takes things a step further. It was held in that case that voluntary overtime, rather than just overtime which the employee has a legal obligation to perform, should also be taken in to account when calculating holiday pay. This would not apply to all voluntary overtime since in that case it was said that the overtime payments were paid in such a manner and with sufficient regularity to be considered part of the workers’ normal remuneration but nonetheless the principle is established.

 

It should be noted that this is a first instance case and therefore the decision is not binding on any subsequent employment tribunal, although it is likely to be persuasive. There is a further complication in that the requirement to include overtime and commission payments in holiday pay for those workers with normal working hours, only applies to the basic four weeks of leave guaranteed under the Working Time Regulations and not to any additional leave.

 

It is an increasingly complex area and, if you are in doubt as to the manner in which to calculate leave for your workers you may wish to take advice from our specialist team.

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