Overtime pay to be considered when calculating holiday pay

Employers in companies where overtime is a common occurrence should pay attention to a recent ruling by the European Court of Justice (ECJ) which could affect the amount of holiday pay granted to employees.

The change was brought about after 56 Unite members working for the Metropolitan Borough of Dudley as tradesmen, claimed that their holiday pay should include money from overtime work that they would have done in a regular week; had they not been on holiday.

The court ruled in the workers’ favour with the justification that the employees should receive ‘normal pay’ otherwise they might be dis-incentivised from taking leave.

This ‘normal pay’ ruling would apply only to the first four weeks of holiday that the employees take, as this reflects the common agreement for annual leave granted under European Law – based on a person working full time five days a week.

If the workers had a holiday allowance of five weeks for example, the fifth week wouldn’t technically be eligible for overtime credit– although it’s quite possible that employers may waive this differentiation due to the complexities of calculating holiday pay. And, of course, the potential of employees finding this unfair.

But perhaps the main consideration for employers to grasp is the background on the workers’ overtime. Could for example, overtime holiday pay be granted to someone that does an extra shift once in a blue moon?

No, as this would not count as ‘normal pay’. As a direct contrast, guaranteed compulsory overtime would most definitely be considered for holiday purposes. The grey area, is where overtime is voluntary but expected. And here the Employment Appeal Tribunal (EAT) has made it clear that if the overtime is worked regularly and is reoccurring then it should be considered ‘normal pay.’

So if the EAT was faced with a tribunal about holiday pay in relation to regular voluntary overtime, it would look at the period that the complaint referred to and make a decision based upon patterns worked. In the above mentioned Dudley Metropolitan Borough Council v Willetts case, a three month period was looked at. However this period isn’t set in stone and other judicial guidance has suggested twelve months as being a fair timeframe.

All of this means that employers need to ensure that their houses are in order, with records of the different types of work undertaken and when clear for all.

 

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