10 Nov 2014

Overtime in holiday pay - more uncertainty ahead


Employment alert email

Tuesday 4 November 2014

The Employment Appeal Tribunal (EAT) has today ruled in the cases of Bear Scotland Ltd v Fulton and Baxter, Hertel (UK) Ltd v Wood and others and Amec Group Ltd v Law and others on whether employers should include average overtime in workers' holiday pay. UK law originally provided that overtime is only included in holiday pay if it is both compulsory and guaranteed.

However, the EAT granted permission to Hertel and Amec to take the case to the Court of Appeal. This means, although the EAT's decision is the correct law for now, a final ruling will be some years away, leaving employers facing ongoing uncertainty on their liabilities for holiday pay going forward (and retrospectively).

The EAT released the following conclusions today:

  • Article 7 of the Working Time Directive requires workers to be paid their "normal" pay for the purposes of taking annual leave granted by EU law. Any workers who have an unsettled pattern of work should have their pay calculated as an average. Therefore any regular, but non-contractual overtime, should be reflected in a worker's annual leave payment.
  • Average pay is limited to the basic 20 days' annual leave provided by the Directive and not the 28 days' provided for under the domestic Working Time Regulations. This could result in different rates of holiday pay applying to different parts of a worker's annual leave.
  • The Regulations can be read in compliance with Article 7 of the Directive, allowing overtime to be included in holiday pay.
  • However, workers could not claim for underpayment of holiday pay if there has been a gap of more than three months since the last underpayment or the last of a series of underpayments (unless it was not reasonably practicable to do so).

Business Secretary Vince Cable has confirmed he will be setting up a task force to assess the impact of the ruling as a matter of urgency.