Overtime To Be Included In Holiday Pay

Overtime To Be Included In Holiday Pay

Scenario: Holiday pay in the UK is based on basic pay only, whereas in Europe, holiday pay includes overtime.

Three test cases, where employees originally won their case in Employment Tribunals, have had the court decision confirmed at an Employment Appeal Tribunal. Employers have lost their cases, but further appeals are expected. So, the law on holiday pay and overtime is still not clear.

What is happening?

The Tribunal decision yesterday ruled that ‘normal’ and regular voluntary overtime should be included as ‘normal pay’, when calculating holiday pay.
The ruling also suggested that backdated claims can be paid, but we have seen some reports suggesting that this can only be for three months leading up to the holiday.

Impact

Employees will no doubt be happy that they may be due further pay.

Employers will come under increased strain as they struggle with a change in the law, that may be backdated, this will impact on cash flow. In addition, employers are already in the middle of being forced to pay into pension schemes for employees as part of the Workplace Pension Auto Enrolment programme.

The Likely Outcome

Overtime bans?
Lower pay for employees
Employers returning to the statutory holiday entitlement of 4 weeks plus bank holidays?
Employees no longer being offered larger holiday entitlement.
Employees will be expected to deliver. We suggest employers will expect greater commitment.

Comment

The ruling is a good thing, to protect employees if they work “regular overtime”. However, we suggest that increased costs will impact on all. We hope it makes UK business owners and workers more focused on delivering value for money for each other and of course their ‘clients’.  What is the impact on pension contributions?  Sickness pay?  Death in service life insurance? Redundancy pay?

The decision yesterday, and any subsequent full appeal at the main Court of Appeal, we suggest is likely to be a “yes” decision to comply with EU employments.

We have spoken to a number of employer clients and they already are asking is: “Is there any point having employees given the liability?”

We see even further growth in contract work only. Businesses will move to having less employees and offering people work on short term, 6 month contract work only.