New ruling on Holiday Pay
Recently the Employment Appeal Tribunal (EAT) made an important ruling on the way holiday pay has to be calculated in the UK where workers undertake regular overtime. Three test cases, led by the case of Bear Scotland v Fulton looked at the question of what amounts to a normal wage during holiday leave?
The cases involved companies in the construction industry where their staff regularly worked overtime. The staff were required to work the overtime but the companies were not obliged to provide the overtime. When the staff took holiday leave they received considerably less pay than when they were working, as overtime pay was excluded from the calculation. They brought claims for underpayment of their holiday pay and the EAT made a ruling in their favour.
The following points summarise the ruling:
- Workers are entitled to include money they would receive for regular non-guaranteed overtime when calculating holiday pay;
- That additional pay only applies to the basic 4 weeks’ holiday leave;
- Claims for arrears of holiday pay will be limited to 3 months from the date of the underpayment or series of underpayments. It will be out of time if there has been a break of more than 3 months since the underpayment or between successive underpayments;
- Travel allowances providing payment for travel time to work (excluding expenses) should also be taken into account when calculating holiday pay.
No doubt this ruling will have a big impact on businesses with regard to potential backdated claims and payroll.
Leave has been granted for this decision to be appealed to the Court of Appeal so this is not the final decision. Also Business Secretary, Vince Cable has announced the setting up of a task force to investigate the impact of this ruling. It is believed that he will be looking at ways of reducing the impact.
What are the options for employers?
A review of your current overtime policy is advisable. It is thought that some employers will consider taking on agency staff to cover additional work to try to reduce the liability. They may also consider making overtime completely voluntary and irregular, although there is no certainty with this option. In any case, it is important to get appropriate legal advice before considering changes to terms and conditions of employment or employment policies.
Author: Seema Gill
7th November 2014
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