Changes you’ll need to know about holiday pay

We have previously reported on Appellate Court decisions holding that employers who are contractually obliged to work overtime must have that overtime reflected in the calculation of their holiday pay.  Until last week, there has been no Appellate decision on the issue of voluntary overtime, albeit Acas guidance and the advice of many employment lawyers has been that it is likely that it will be held that voluntary overtime, worked on a regular basis, must be reflected in holiday pay calculations.

In the case of Dudley Metropolitan Borough Council -v- Willetts (and Others) the Employment Appeals Tribunal has held that voluntary overtime, worked for a sufficient period of time on a regular and/or recurring basis, needs to be included in the calculation of the first four weeks paid holiday pay.  The rationale of this decision is that workers should receive “normal remuneration” when taking a holiday and that workers should not be deterred from exercising their rights to take paid annual leave with any reduction in salary presumed to deter employees from taking annual leave.

There are still some unanswered questions, for example, the frequency and regularity of the payment will be relevant factors for the Employment Tribunal to consider, such as whether overtime forms part of normal remuneration.  Exceptional one off instances of overtime are unlikely to count as normal remuneration, but overtime usually paid and regular will probably qualify as “normal remuneration”.

Employees are potentially able to claim for up to two years’ arrears of holiday pay in relation to four weeks’ of their annual holiday entitlement.  The likely bill will be equivalent to 12.07% of the voluntary overtime worked as a supplement under holiday pay actually paid.  However, for large employers with employees who work significant amounts of overtime, the bill could be substantial.  It will now also be easier for individual employees in smaller businesses to pursue claims given the removal of fees.

Prior to the Supreme Court decision quashing Employment Tribunal fees, it may have been uneconomic for employees to pursue claims such as this to the Employment Tribunal without the support of a trade union.  This decision means that individual employees may now pursue claims for arrears of holiday pay arising from this decision.  Employees potentially can claim shortfall in holiday pay back over two years.

If employers have any queries in relation to this decision, they should not hesitate to contact Daniel Wilde on 01633244233