Tribunal ruling links holiday pay to overtime

An employment tribunal recently ruled in favour of an employee who argued that his holiday pay should reflect his overtime pay as well as his basic wages. The case has implications for how employers apply the rules under the Working Time Regulations and has moved the UK closer to EU law.

According to a report on the Chartered Institute of Personnel and Development (CIPD) website, the case moves holiday pay calculations towards workers' average earnings in the 12 weeks leading up to their holiday - including overtime.

The tribunal heard that the employee worked a 35-hour week, plus overtime when necessary, as determined by a roster system. He regularly worked up to nine hours each day and occasionally up to 12 hours to cover for his colleagues.

The employee felt his holiday pay should reflect the actual pay he received rather than his basic salary alone, while the employer maintained that his overtime work was voluntary and his holiday pay should only take account of his basic pay, which was how it had always calculated his holiday pay entitlement.

The tribunal held that hours worked over and above the employee's contractual seven hours were 'intrinsically linked' to his performance of his role, and it was irrelevant whether the overtime was voluntary or not.

The tribunal found the employee had been underpaid in respect of his holiday pay entitlement and the parties arranged an out of court settlement.

This decision could be tested by the higher courts but, for the time being, any paid overtime (whether voluntary or not) should now be considered alongside other premiums in employers' holiday pay calculations, says the CIPD report.

As an added complication, this decision relates to the four weeks' holiday pay that workers are entitled to under European law.  It does not apply to the additional 1.6 weeks' holiday that workers receive under UK law.  It seems likely that the judgement will be appealed to clear up the confusion and avoid a situation where there are different rules for different weeks of a worker's holiday, says the report.

Acas runs Employment law update training sessions to help employers keep up to speed with the UK's legislative framework, explaining any changes in a practical and straightforward way.

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Article with kind permission from ACAS.