11 December 2014

'Tis the season to know your holiday pay: An update on EAT ruling

Christmas holidays are rapidly approaching, which serves as a timely reminder of the importance of the recent EAT ruling on holiday pay, particularly if your employees or workers are working overtime in the lead up to the festive break.

In brief, the recent ruling has confirmed that:

  • Non-guaranteed overtime (where there is no obligation on the employer to provide overtime but an obligation on the employer to perform it if requested) should form part of an employee’s holiday pay calculation. This may have an impact on the relevant pay for your employees Christmas break.

  • Any additional regular payments such as travel time, radius allowance, shift allowance and seniority payments form part of normal remuneration and should also be included within holiday pay calculations.

But the good news is that:

  • This decision only applies to the basic four weeks’ leave granted under the Working Time Directive (European Law) and not the additional 1.6 weeks prescribed by UK law or any additional contractual paid holiday you provide.

The ruling states that in each holiday year the four week European holiday entitlement is taken first, so whether you will need to pay your employee more for their holiday this Christmas, will largely depend on which month your holiday year runs from.

Even better news is that it has been confirmed no appeal will be made against the finding that:

  • Workers will not be able to bring claims based on a series of deductions where there has been a gap of more than three months between the underpayments of the first four week statutory holidays. This will significantly limit how far back any potential claims can go and reduce any exposure to companies.

Future issues:

  • The EAT did not address the issue of voluntary overtime (where an employee is not contractually required to work overtime but agrees to do so) but we can provide further advice on this area if it applies to your business.

  • The EAT also failed to provide any further guidance on the reference period to use in order to calculate average remuneration taking into account the above payments. Further guidance is likely in February when a further appeal is heard, but in the meantime it will be best practice to stick to the usual 12 weeks.

Now is the time for you to assess whether you have any workers who regularly work non-guaranteed overtime or are paid allowances which extend beyond simple expenses. If so are you taking this into account for any future holiday pay and may this give rise to any claims?

Do you know what to do next to avoid any nasty Christmas surprises?

We highly recommend that you review the following and consider making necessary amendments to reflect the recent ruling:

  • Contracts of employment, policies and procedures

  • Holidays taken to date

  • Payments made and any potential underpayments

  • Working practices for the future on overtime

Our specialist employment team is on hand to advise you on your specific situation and discuss changes to your current practices and employment documentation - so please do get in touch with us if you need any help.

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