Wednesday 5 November 2014

Holiday Pay and Overtime


The Employment Appeal Tribunal (EAT) has recently issued its decision in the case of Bear Scotland Ltd –v- Fulton & anor. This is a decision that employers and employees alike have been eagerly anticipating as the appeals concerned whether the calculation of holiday pay should include an amount in respect of “non-guaranteed” overtime.  This is overtime that the employer does not have to offer to the employee but under the terms of their contract the employee is obliged to accept it.

In the UK we have the Working Time Regulations 1998 (WTR), which implement the Working Time Directive.  The EAT held that under the Working Time Directive this “non-guaranteed” overtime should be taken into account, and also that the WTR should be interpreted to give effect to this. The ruling will apply to any overtime that is regularly worked, whether or not it is compulsory.

The reason for this decision is that under EU law workers are entitled to receive their “normal remuneration” when taking holiday leave, and so where overtime is regularly required by employers it makes sense this should be included as part of normal remuneration.  The EAT decision is in accordance with the recent European decision of Lock –v- British Gas Trading Ltd.

Employers should however note that whilst under the WTR workers are entitled to 5.6 weeks holiday per leave year, the requirement to include the overtime payments only applies to the 4 weeks entitlement that is conferred on workers by the Working Time Directive.  So whilst our domestic law provides a more generous holiday entitlement than EU law, the EAT ruling does not apply to the additional 1.6 weeks holiday entitlement that domestic law provides.

The key concern for employers has been whether this ruling will open the floodgates for historical claims for holiday pay that previously did not include the overtime.  To an extent the EAT have tried to restrict the scope for workers to recover underpayments.  Employees will not be able to claim more than 3 months after the last incorrect payment.

There are wide-reaching legal and practical implications arising from this decision.  The Business Secretary, Vince Cable, has announced a task force will be set up to assess the impact of the ruling on businesses. 


Over coming weeks the full ramifications of the decision will become clear so watch this space.
If you require assistance in reviewing your holiday pay procedures or would like advice on how best to manage this then please contact Marsha Robinson.