Being Paid To Go On Holiday: Do You Include Overtime?

Being Paid To Go On Holiday: Do You Include Overtime?

Continuing to be paid whilst taking holiday from work has been a long standing right. Until recently employers were entitled to base holiday pay on basic working hours only, and not on the amount of basic working hours plus overtime. For employees who regularly worked overtime, this meant that their holiday pay would be substantially less than their normal weekly pay.

In a recent decision, however, the Employment Appeals Tribunal (EAT) has determined that if overtime is compulsory, or if it is voluntary where the overtime is worked regularly or to a regular pattern, then the average overtime payments should be included as “normal” pay for holiday pay purposes.

Many people do work regular voluntary overtime. For example, a typical working week may amount to 36 or 40 hours a week, but with regular overtime a worker may work between 45 and 55 hours a week. These workers can now look forward to a higher rate of holiday pay based on their basic pay and regular overtime pay.

In most cases it will be obvious whether the overtime payments are regular or not. Under the Working Time Regulations 1998 (WTR) the reference period is taken to be the average normal pay over a 12 week period before holiday is taken. But what if there is a high amount of overtime only during a certain period, eg in the run up to Christmas? Would this be considered part of normal pay? Well, maybe, on the basis that it is predictable every year. If so, the 12 week reference period under the WTR would need to be amended. But, unfortunately, for now the position remains unclear about this situation.

There are two important caveats to the EATs judgement. The first is that the overtime pay can only be included as part of holiday pay for the 20 days’ statutory holiday, and not the extra 8 days’ public holiday (9 in Scotland) or any extra amounts of contractual holiday. The second is that the EAT has limited the ability of workers to claim previous holiday pay which did not include overtime payments. Before the judgment, there was the possibility of back pay claims going back years. But now it seems that the furthest back a claim can go is 12 months – although the EAT has given leave to appeal this aspect of the judgment so we do not yet know the final position on this.

The Government has already set up a task force to consider the consequences of the judgment. Already, however, there are accusations that it is employer-biased given that there are no representatives from trade unions or employee groups. In the long term, one possibility may be that employers seek to reduce the level of overtime payments and the overall amount of overtime used.

© Ben Thornber, Thornber Employment Law