New Case: Extra Holiday Pay For Overtime

More money for taking holiday?! If you’re an employer or you manage an HR department this could have a large potential impact. If you’re employed you could be entitled to more holiday pay or payment in lieu of holiday when you leave. So what was decided at the Employment Appeal Tribunal last week and what does it mean?

If you’ve worked non-guaranteed overtime and been paid holiday pay, or left your job and received holiday pay in lieu (also having worked overtime) then under the new ruling from the Employment Appeal Tribunal, you might be entitled to higher rate of pay. The tribunal asked itself whether “non-guaranteed overtime and the other elements of remuneration…had to be included in pay” - paid for annual leave. In short, they decided that the answer is yes – yes they do. So how might this affect you or your department?

According the Office For National Statistics 5 million people do voluntary or compulsory overtime just like the conjoined cases before the Employment Appeals Tribunal (EAT – read the full case here). The first two engineering and construction workers were, under their contract of employment employed for 38 hours per week but also under an obligation to take on overtime if it was provided by the employer (who was under no obligation to provide it). This was referred to as voluntary overtime, but as the judge commented, better described as ‘non-guaranteed’ overtime.

The Working Time Directive (EU Legislation) was implemented in the UK by the Working Time Regulations and interpreted by a number of cases which basically state that you must get ‘normal pay’ for holiday pay. The reason, you might think is simple: if that was not the case people may not take their holiday. Those cases already decided that some elements that make up pay, payable to airline pilots for example, must be included and that commission – in one case amounting to 60% of remuneration – must also be taken into account as normal pay.  It’s no great leap, you might think, that this EAT case extended that principle to non-guaranteed overtime but it appears that it might affect a large number of nationwide employment contracts. 

How exactly this case affects you or your department will depend on a close analysis of the employment contract, the precise area of work and how different elements contribute to overall remuneration. The judge in this case gave permission to appeal to the Court of Appeal so you might think that gives you time but a closer analysis reveals that you might not want to wait.

The judge said that he didn’t give permission because he thought the case to be arguable on two key issues but only because there was considerable public interest. He went further and said earlier in his judgment that it would be perverse not to include non-guaranteed overtime when calculating normal pay. So while we wait to see if the parties will appeal, and then whether they will be successful, all we can say is that the judge in this case, doesn’t think it has legs.

If it is your department, or your job, the best thing to do is to take advice to work out the impact if you think this ruling might affect you. It is further important to note that whilst every case is different the court held that you normally only have 3 months to apply to the tribunal from the date on which the unlawful deduction was made (unless the deduction was part of a series of payments).

Because of the large number of employees it potentially affects, this ruling could have a large impact, so much so that the business secretary is reviewing the potential consequences. Those who take an early lead in assessing their position will be better placed to react and respond, particularly if they find themselves with increased wage bills in the future.