Last week it was announced that The UK Employment Appeal Tribunal (EAT) has ruled under the Working Time Regulations (WTR) that non-guaranteed overtime should be factored in when calculating the amount of holiday pay that an employee is entitled to. We’ve provided you the answers to the most frequently-asked-questions surrounding this news.
By law, all UK workers on a five-day week are entitled to 28 days a year paid holiday. Part time workers are entitled to the same level of holiday albeit pro rata. Employers are allowed to include bank holidays within the annual leave period, and they are also expected to pay you for holiday you’ve built up if you leave your job without having used the full entitlement.
The government states that employers should use basic pay when calculating how much a worker should get paid while they are on holiday. This was outlined in the Working Time Regulations Act of 1998. It means that overtime and commission, which normally help to increase average pay levels, is not included when calculating basic holiday pay.
Holiday pay now needs to include pay for non-guaranteed overtime which was worked by the employee in the 12-week period before the holiday. Non-guaranteed overtime is overtime that the employee is contractually required to work, but which the employer doesn’t promise to offer.
Previously, employers have been paying holiday pay based on an employee’s basic pay but now employers will have to take into account certain types of overtime, and potentially bonus payments and commission, when calculating holiday pay, rather than just considering basic pay.
No. Although there will no doubt be further debate and case-law over whether overtime is voluntary or not and it is likely that future case law will determine that regular voluntary overtime will be deemed “normal pay”.
It only applies to the first four weeks (including bank holidays) of holiday taken in each holiday year. The remaining 1.6 weeks’ holiday (as required by UK law) or any additional contractual holiday can be based on normal remuneration, excluding overtime.
This also means that business owners may have to pay out for previous underpayments as well as potentially having to pay out for more holiday pay going forward. This is due to the fact that employees will be able to claim backdated holiday pay.
Businesses with non-guaranteed overtime have four options:
You will also need to consider whether you budget in the current financial year for any valid claims your employees may have for backdated pay.
All businesses should also review your contracts and processes, which would include: