The Employment Appeal Tribunal (EAT) has recently ruled that employers must include an amount for non-guaranteed overtime when calculating holiday pay entitlement.
This ruling applies to those who can be required to work overtime but for whom overtime is not guaranteed.
At present, most employers calculate holiday pay on basic salary only.
Mr Justice Langstaff said that such payments were part of “normal remuneration” for the purposes of the Working Time Regulations. The Regulations require employers to give workers a minimum of four weeks’ paid annual leave each year. This ruling only relates to the 20 days and not to the additional 1.6 weeks granted in the UK.
In addition, the EAT held that travel time payments for more than expenses incurred, which amount to extra taxable income, should also be reflected in holiday pay.
The good news for employers, at least in the meantime, is that they are unlikely to face backdated claims going back over a number of years. The judgment restricted claims for holiday pay underpayments to those that applied to the last three months, unless the failure formed part of a series of deductions ending within that three month period.
Employers should now urgently review their holiday policies and consider what changes need to be made to limit exposure to further expense to their business. In light of this ruling, employers will be well advised to also consider how bonuses and voluntary overtime will be dealt with in future.
Premier Legal offer advice on how you can limit your organisation’s liability going forward or deal with back pay issues, Get in touch with our team on 0845 070 0505 (Please note: Calls to this number will cost approximately 4p per minute plus your telephone company’s access charge) (Please note: Calls to this number will cost approximately 4p per minute plus your telephone company’s access charge) to see how Premier Legal can answer your holiday pay questions.