Staff holiday pay and overtime rules – don’t let them be a passport to a breach of employment law

WITH the weekend of July 27 and 28 set to break all holiday records, the annual Great British summer getaway is getting ready for take-off.

As millions prepare to pack their passports, businesses are advised to check in to their employment law responsibilities to avoid falling foul of the complex holiday pay and overtime rights of their staff.

Under employment law, the general position regarding holiday pay is that it must be calculated on the basis of an employee’s standard rate of pay as set out in their contract of employment.

Where the contract is clear that an employer must offer overtime, and employees are obliged to accept overtime, this overtime must always be included in the calculation of holiday pay. However, the employment law position is not so clear when it comes to non-contractual overtime and holiday pay.

The question we get asked regularly in our Employment Law team is: “If an employee regularly works overtime, even if it is not guaranteed overtime, what impact does this have, if any, upon the level of holiday pay that they are entitled to?”

In this scenario, overtime should be taken into account when holiday pay is calculated. This position was confirmed in the case of Bear Scotland Ltd and others v Fulton and others; Hertel (UK) Ltd v Woods and others; AMEC Group Ltd v Law and others [2015] IRLR 15 EAT.

Whilst there is no set rules as to what constitutes “regular overtime” for it to be included in the calculation of holiday pay, a good rule of thumb would be to look at the level of pay an employee normally receives. Employers can use this as a basis as to what should be included in their staff member’s holiday pay.

For example, if an employee works a steady pattern of overtime, even if this is only for a set period of time, this would be sufficient to amount to pay that they normally receive. As such, it should be included in the calculation of holiday pay.

This position also applies to regular voluntary overtime. However, in current employment law, this only applies to holiday pay for the first four weeks of holiday pay.

Accordingly, it is unlawful for an employer to pay holiday pay based on basic pay only, if that employee has worked regular overtime.

It is therefore important that employers include regular overtime in their holiday pay calculations, or they run the risk of an employee bringing an unlawful deduction from wages claim against them and given that there are now no fees to pursue a claim in an Employment Tribunal, employees have nothing to lose.

Whether you are an employee or an employer, should you have any questions or concerns regarding holiday pay and overtime, or any other employment law-related issues, please do not hesitate to contact this article’s author, Solicitor Lazuna Ullah, or a member of our Employment Law team here at Milners on 0113 245 0852 or email us at hello@milnerslaw


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