EAT confirms holiday pay should include overtime normally worked

1. It has been widely reported that the judgment means that employers will now always have to include overtime when calculating workers’ holiday pay entitlement. In fact, the judgment makes clear that staff should receive “normal pay” for the annual leave they are entitled to under the working time directive. However, it leaves the question of what “normal pay” is more open than some media reports have suggested.

In the cases under consideration, there was a settled pattern of regular overtime and so the overtime clearly formed part of “normal pay”. The EAT highlighted that payment has to be made “for a sufficient period of time to justify that label”. Where staff are working sporadic overtime and there is no regular pattern, the position is less clear and overtime pay is unlikely to have to be included. Unfortunately the EAT did not provide any guidance on what is “normal” and so careful consideration will need to be given to the particular circumstances relating to your overtime arrangements. These may vary considerably from employee to employee.

Normal pay may also include things such as payments for on call, shift allowances or payments for sleep in shifts where these are routinely worked.

2.  It is also important to note that the judgment only applies in relation to the calculation of holiday pay for the 4 weeks’ holiday workers are entitled to under the working time directive, not the additional 1.6 weeks UK workers receive under UK law or to any additional contractual holiday entitlement.

3. There has been widespread media coverage of the likelihood of claims by employees for backdated holiday pay. However, one of the other key points in the EAT’s decision is that claims for unlawful deductions from wages relating to holiday pay will be out of time if there has been a break of more than three months between successive underpayments, i.e. between dates when holiday pay was paid. This may limit the exposure to claims for back pay.

4. One final point to note is that it seems very likely – given the potential significance of this case – that this judgment will be appealed. Therefore, this may well not be the final word on this issue yet.

What can employers do now?

1. Given the widespread media coverage of the decision we consider employers who provide paid overtime should consider proactively letting staff know that you are reviewing your arrangements for payment of holiday pay in light of the judgment to avoid an influx of questions and complaints and to demonstrate you are on top of the issue.
2. We consider you will then need to review your records relating to overtime worked to identify those staff where overtime appears to be worked routinely. For any staff in that category you should consider including regular overtime when calculating holiday pay going forward (if you are not doing so already), potentially making this subject to the outcome of any future appeal.
3. You should give careful consideration to the individual circumstances of your organisation and the nature of any overtime worked by your staff and what may be classed as pay that is “normally” received.

For advice about the changes you may need to make to your existing arrangements to put you in the best position to avoid successful claims please contact your normal contact in our employment team or Matt Wort or Kate Watkins on 0121 212 7494 or [email protected] or [email protected].

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