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Holiday pay – where are we now?

PUBLISHED 11.11.14
Holiday pay has hit the headlines – mainly due to the impact of the decision of the Employment Appeal Tribunal (EAT) on 4th November 2014.

In the two cases brought to the court, the question was the calculation of holiday pay and whether if the employee worked overtime, if that overtime was to be used in the calculation.

The EAT decided that if the employee was contractually obliged to do the overtime if overtime was offered, and that overtime was given on a regular basis, then the employee was entitled to have their overtime pay included within the calculation of holiday pay. In other words, the employer had to factor in overtime pay, not just pay holiday on the basic pay.

This is limited to 4 weeks – 20 days – not the 28 days which is the additional 1.6 week’s paid holiday entitlement in the UK legislation.

The next part of the question relating to holiday concerned payment for travel to and from work (for example, travelling to and from a site). If the employee contractually had this payment – then should it be included in the holiday pay calculation. The answer was yes – if it is contractual.
In a nutshell – holiday pay is no longer to be based on basic weekly pay – but what the employee actually earns under the terms of their contract – in these two cases, the overtime was fixed and obligatory and the payment to travel to and from site was contractual.

Can the employee claim back 6 years?

No, not if there is a gap between deductions of more than 3 months. Pardon? – I hear you ask – what does that mean?!!

It refers to how a claim can be brought in a tribunal or a county court. The failure to calculate holiday pay correctly is deemed to be an ‘unlawful deduction in pay.’ So the failure of the employer – who up until now did not know that compulsory overtime had to be included in the calculation of holiday pay – is deemed to have unlawfully not paid it and as a consequence the employee can sue alleging that failure and ask for the money to be paid. BUT if there has been a gap of 3 months between holidays – and therefore claims – then the employee is limited to the claim that was within the last 3 months. So the claims are very limited.

The Government has decided to set up a Taskforce under Vince Cable to investigate the impact of this latest case law on employers, and how to limit it, fearing it could potentially damage investments and future business, as well as potential closure of businesses who may have to pay out substantial sums and lead to job losses.

What can employees do?

Look at your contract of employment and the overtime provisions. Is the overtime you do compulsory? If so, then that overtime payment is to be included in the calculation of your holiday pay.

You can go back to your employer to seek underpayments of holiday pay – though your right could be limited to how much you can claim dependent on when you did the overtime and when you took holiday.

Ask your employer to set out the policy of holiday pay so everyone is clear as to what they are entitled to.

What can employers do?

Employers can check their contracts with their staff and their own policies on holiday entitlements.

They will need to decide whether they are, in future, if overtime is part of the contract and the employee is under that contract obliged to do it, decide whether they will pay the overtime part for the 4 weeks only (European legislation on Working Time rights and the basic holiday entitlement) or the UK legislation of 5.6 weeks holiday pay (28 days) – which is more generous.

Bear in mind that all of this may change – as the Government are urgently looking into the impact this recent case law will have on businesses.

At QualitySolicitors Dunn & Baker we have the experts in employment law to assist you in drafting your contracts, your policies and advising you on business. Contact Lizzy Bowman on l.bowman@dunnandbaker.co.uk and Kathy Trist on k.trist@dunnandbaker.co.uk for experienced advice and assistance.

QualitySolicitors Dunn & Baker – to us, business matters.