Workers should receive pay which is “normally received” when they go off on holiday. The cases before the EAT dealt with regular non-guaranteed overtime. The EAT ruled that this does form part of pay “normally received”.
Non-guaranteed overtime is overtime which the employer is not obliged to offer but when this is offered the employee is obliged to accept it. It is wise for employers to review how employees are asked to work overtime, the obligation on the employee to accept the overtime and also the frequency in which overtime is worked. The answers to these questions should determine whether overtime is classed as regular non-guaranteed overtime.
The requirement to include overtime in holiday pay only applies to the first 4 weeks of holiday taken in each holiday year. The remaining 1.6 weeks (required by UK law) or any additional contractual holidays do not have to reflect overtime payments. For administrative reasons it may be difficult for employers to keep track of this and calculate holiday payments. However, where the impact of this is significant the EAT decision is helpful.
This decision has been expected for a while and one of the major concerns for employers was the possibility that employees could claim for incorrect holiday pay spanning back years. The decision states that claims will be deemed to be out of time if there has been a break of more than 3 months between payments. This limits the claim an employee can make for historic holiday pay.
What should employers do now?
Review how frequently employees are working overtime
Consider how this is offered and the obligation on the employee to accept the overtime
Review the pay employees receive when they are off on holiday and consider whether this is the same pay they normally receive when they are at work (employers should consider factors such as overtime, regular allowances, regular additional payments and commission)
Review the financial impact on your company and consider the implications of the 4 weeks holiday or the full entitlement
Review the wording in your contracts of employment regarding holiday pay
Anyone watching the news or looking at social media on 4 November 2014 will be aware that the Employment Appeal Tribunal (EAT) has now handed down its decision in the holiday pay cases.