Following the recent Employment Appeal Tribunal (“Tribunal”) decision confirming that certain overtime and allowance payments should be included when calculating an employee’s normal weekly pay for holiday pay purposes, there have been a number of recent developments.
As you will recall, the Tribunal’s decision meant that employers should pay their employees holiday pay which reflects their “normal pay”.
The Tribunal has confirmed that holiday pay should, therefore, include guaranteed compulsory overtime (i.e. overtime guaranteed under the Contract, whether or not available) and non-guaranteed overtime, (i.e. an employee is obliged to work overtime and be paid for it, if it is offered).
Holiday pay should also include any allowances payable such as travel or attendance allowances if they are “intrinsic” to an employee’s normal work.
What about Voluntary Overtime and Commission?
Whilst we are still waiting for clarification in relation to the position for commission and voluntary overtime, it does not look good for employers.
Indeed, we attended a recent talk given by a senior lawyer involved in the recent case and, in his opinion, the tribunals are likely to conclude that holiday pay should reflect an employee’s normal pay and therefore include commission and all types of overtime, including voluntary overtime.
How can the Claim be Limited?
- The decision could cause serious damage to businesses if employees are able to claim unpaid holiday pay going back to 1998 or perhaps even earlier. The Government has, therefore, confirmed that any retrospective claims are limited to a maximum of two years.
This limit however will only apply to claims issued at a tribunal after 1st July 2015. There is still time, therefore, for employees to submit claims to a tribunal now which could stretch back to 1998 or even earlier.
It is common knowledge that “no win no fee” and union solicitors are already gearing up to bring large scale claims before the July 2015 deadline. The publicity for this will only get stronger as we approach the deadline.
- Claims may also be limited if there is a break of at least 3 months between periods of holiday.
Calculation of a week’s pay
In light of this decision, employers will need to calculate a worker’s average weekly pay. The Employment Rights Act 1996 already includes provisions for calculating an employee’s weekly pay based on a 12 week reference period for the purposes of redundancy pay and other claims.
Whilst the Tribunal did not confirm that this is the method that should be used for the purpose of calculating holiday pay, it does seem the most logical approach in the circumstances.
That said, this may have to be reviewed and a longer calculating period considered if it is not reflective of an employee’s true pay.
What should you do next?
We will continue to watch the developments on this subject with baited breath. However, we advise that you do not bury your heads in the sand. By doing nothing, you are not breaking the series of deductions and reducing your liability moving forward.
We therefore urge you to review your practices and contractual obligations in relation to overtime and allowances and how you calculate holiday pay.
Once you have done so we can discuss your potential liabilities, with particular regard to back-dated claims and your options for moving forward to ensure that you draw a line in the sand and limit your ongoing liability as far as possible. Indeed, we have already helped a number of clients in this respect.
If you are interested in a holiday pay audit, please contact a member of our Employment Team.
