Inclusion of overtime in calculation of holiday pay has its limits – Mayo Wynne Baxter

Inclusion of overtime in calculation of holiday pay has its limits - Mayo Wynne BaxterOn 4 November 2014 the Employment Appeal Tribunal (EAT) caused quite a stir when it handed down its judgment in Bear Scotland v Fulton (and conjoined cases).

In that case the key points of note were as follows:

1. Workers are entitled to be paid monies to reflect normal non-guaranteed overtime as part of their holiday pay. This is because holiday pay should be calculated on the basis of what is normal pay. Normal pay is what is normally received for what a worker is required to carry out in their job role.

2. Domestic legislation could be interpreted to provide for this result. This does however, only apply to the basic 4 weeks’ leave granted under the EU Working Time Directive, not the additional 1.6 weeks under regulation 13A of the Working Time Regulations, the domestic legislation that reflect the EU directive.

3. Claims for arrears of holiday pay will be out of time if there has been a gap of over three months between successive underpayments. This is subject to the usual reasonable practicability test so an extension may be allowed in limited circumstances.

4. Finally, taxable remuneration for time spent travelling to work (travelling time payment and radius allowance) should also be reflected when calculating holiday pay.

This means that all people working voluntary overtime could claim for additional holiday pay. Previously, only basic pay counted when calculating holiday pay.

The EAT refused to grant a reference to the Court of Justice of the European Union, but did give permission for an appeal to be made to the Court of Appeal. They stated that the third point listed above was the most important issue for the Court of Appeal to consider. Given the substantial financial implication for companies in possible back dated claims an appeal appeared likely. However, the union Unite has now said it will not be making an appeal on this issue.

Unite have said that it was not their intention to bankrupt business with back dated claims. Instead they were looking at ensuring worker are paid their fair share going forward. Part of this process, as the union sees it, is working with employers to ensure they get their house in order.

The government estimates that one-sixth of the 30.8 million people in work get paid overtime, meaning that approximately five million workers could be entitled to more holiday pay. That is a lot of houses to get in order.

Working arrangements will have to be assessed in order to decide what is and is not regularly worked non-guaranteed overtime and what allowances are more than mere expenses. A judgment will have to be made on what qualifies as regular work which can be properly related to normal pay. Where a pattern of work is fairly settled then the task is made easier.

The Government responded to the EAT judgment by setting up a taskforce to look at the issues raised by it. Unite has made known its upset known about unions being excluded from it. What ideas the taskforce comes up with remains to be seen. In the meanwhile welcome to the new normal, even though it may lack a bit of definition.

Article written by our Founding Partner, Mayo Wynne Baxter:

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