Overtime and holiday pay

The Employment Appeal Tribunal (EAT) has handed down judgment in three holiday pay appeals, and although the decision will lead to higher holiday pay for many employees in the future, the judgment could significantly limit the liability for back pay.

The decision means that many elements of pay that are currently excluded from holiday pay, principally non-contractual overtime, should be included.

The claims arose because of a conflict between UK and European law as to how holiday pay should be calculated, which was highlighted in the case of the British Gas worker, reported in the July 2014 Newsletter.

In this case, the worker’s pay was made up of roughly 40% basic pay and 60% sales commission but he was only paid his basic pay whilst on holiday. The Court of Justice of the European Union determined that this was incorrect, and that his holiday pay should be based on pay that was ‘intrinsically linked’ to the performance of his work.

The latest EAT cases followed a similar argument – that non-contractual overtime and other elements of pay that ‘go with the job’ should be taken into account when calculating holiday pay. The EAT Judge agreed saying that, when on leave, a worker should receive their ‘normal pay’, normal pay being what the worker would normally have been paid had he been in work and not on leave.

The decision is only directly applicable to the four weeks of leave that derive from the European Working Time Directive, and in theory the 1.6 weeks of ‘additional leave’ provided for by the UK’s Working Time Regulations are unaffected. This could mean that, for technical reasons, back pay may be limited to the current holiday year.

Permission has been given to appeal the decision to the Court of Appeal and it is too early at this stage to start making changes to contracts whilst there is so much uncertainty regarding the extent to which an employer’s obligations will change.

If you would like any more information on holiday pay, get in touch now.