The law around overtime and holiday pay entitlement continues to evolve. Because of this, holiday pay entitlement for staff who work overtime is a trickier subject than it might seem on the surface.
That’s why we’re here to break it down for you.
What kind of overtime counts towards holiday pay?
In summer 2017, the Employment Appeal Tribunal (EAT) ruled that employers must include any regular voluntary overtime payments when they work out holiday pay for their staff.
However, this ruling only applies to the first four weeks of holiday pay—these four weeks are the amount of annual leave that the EU Working Time Directive requires employers to give to employees and workers.
While UK law does grant workers and employees an additional 1.6 weeks’ holiday, this 1.6 weeks doesn’t have to include voluntary overtime.
The above court ruling was during the case of Dudley Metropolitan Borough Council v Willetts and others. The EAT ruled that where an employer makes regular payments for voluntary overtime to his or her staff, the employer must take these payments into account when working out holiday pay for the first four weeks.
This ruling was because the European courts have decided holiday pay (pay during annual leave) must reflect “normal remuneration”—the money your staff earn when they’re at work. This is so that people don’t feel discouraged from taking their European entitlement of 4 weeks’ annual leave. Who would want to take their holidays if they were going to get less pay?
This Employment Appeal Tribunal (EAT) ruling on overtime and holiday pay was great news for staff.
And it’s another sign that UK and European case law has continued to progress when it comes to what an employer needs to include when calculating statutory holiday pay (SHP) for workers and employees for EU holiday. Holiday pay and overtime rulings are a hot topic and it’s fair to expect the law will evolve further—especially after the UK leaves the EU.
If you’re an employer, it’s in your best interest to stay up to date with holiday pay entitlement on overtime legislation. Otherwise, you risk falling foul of the law.
Currently, overtime pay in the UK that is contractual also counts towards the first four weeks of holiday pay.
And, when you calculate your employees’ holiday pay, you should include any normal non-guaranteed overtime, too—again, for the first four weeks’ holiday pay. Are you noticing a pattern yet?
What is normal non-guaranteed overtime?
Okay, so this is overtime that you haven’t guaranteed to your employees in their contract, but if you require it of them, they have to work it.
Claims for underpayment of holiday
An employee needs to bring a tribunal claim within three months of the underpayment.
So, if you underpaid your employee in June, they have until the same date in September to make their claim.
So to summarise, should overtime be included in holiday pay?
Whether you like it or not, you must include overtime in an employee’s first four weeks of holiday pay.
You must also include commission (if their contract includes commission pay), and in some cases, you will need to factor in the cost of the employee’s work-related travel—can you guess for how many weeks of holiday pay? That’s right—four.
Are there any exceptions involving overtime and holiday pay?
In the UK, overtime that employees work on a "genuinely occasional and infrequent basis" only, as Acas puts it, doesn’t need to count as part of a statutory holiday pay calculation.
Keeping up with evolving laws isn't exactly something you've got time for while you're trying to grow your business, is it?
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