Holiday pay should include pay for overtime | Howells Solicitors
Make a payment

Holiday pay should include pay for overtime

Howells Solicitors

05 Nov, 2014

In an important employment law case, it has been decided yesterday (4th Nov 2014) that employees are entitled to be paid overtime pay when they are on holiday.

The Employment Appeal Tribunal gave a Judgment in one of the most eagerly awaited employment law cases of the year – the case of Bear Scotland v Fulton (and other conjoined cases).  This followed on from other holiday pay cases this year concerning issues such as commission payments.

The case had employment lawyers on the edge of their seats, as the Employment Appeal Tribunal sat at 10am to deliver their long awaited Judgment in the case that was originally heard by them on 30 July and 1 August 2014.

The main points that arise from this Judgment are –

  • When workers take their holidays, they are entitled to be paid holiday pay that reflects payments for overtime that they were required to work, even if their employer wasn’t obliged to provide them with overtime. It has been suggested that this includes overtime that the employee is required to do and overtime that they volunteer to do. It was held that this formed part of their normal weekly pay and so should be taken into consideration when calculating their holiday pay. Crucial issues in the case related to the definition of ‘pay’ ensuring that the UK Courts were interpreting this in the appropriate way according to European laws which provides that pay is the ‘normal remuneration’ of the worker.
    The Judge putting it simply, said that “normal pay is that which is normally received” but one needs to consider what is normal over a period of time or a reference period. Therefore, where an employee does work regular overtime, consideration needs to be given to exactly what their normal remuneration is – it is likely to be more than their basic contractual pay as they regularly work more than this.
    However, as domestic laws on holiday entitlement are more generous than European laws, the right to overtime as part of their holiday pay is only in respect of the standard 4 weeks’ annual leave and not the additional 1.6 weeks’ provided for over and above the European entitlement.
  • Workers can claim in the Employment Tribunal for arrears of holiday pay that are due to them as a claim of unlawful deductions from their wages, provided that there has not been a break of more than three months between successive underpayments i.e. successive payments of holiday pay.
  • Taxable remuneration for time spent travelling to work, should also be reflected when calculating holiday pay.

This provides some clarity on the situation in respect of holiday pay, both for employers and workers. It is a decision that is likely to be seen as more favourable to workers than employers and could have a heavy impact on businesses who rely on workers doing regular overtime. However, the Employment Appeal Tribunal has already granted permission to appeal to the Court of Appeal in this case – so it is likely not to be the last that we hear about holiday pay entitlement. It would not be surprising to see this case then appealed further, to the Supreme Court and even to Europe. Whichever party appeals is likely to be cautious though – the workers not wanting the decision reversed, while employers not wanting the unlawful deductions point extending on appeal.

Vince Cable, Business Secretary, has also confirmed quickly that he is to chair a taskforce assessing the possible impact of this ruling on businesses.

Nonetheless, this Judgment leaves it open to workers who are required to work overtime as part of their contracts of employment to bring claims against their employers, which could potentially be very costly indeed. If a worker has timed their holidays in such a way that they take their holidays regularly, never with more than a three month gap between each period of leave, then their claim for unlawful deductions of wages could stretch back several years.

The Judgment has been declared a major success for workers, who will feel able to take holiday pay without losing out on wages. A guiding principle of the Working Time Directive was to ensure that workers took paid time off work for their safety and their health. It has been reported that many workers who work regular overtime, were not taking their holiday which was paid at basic rates as they would lose out on money. Workers who regularly work overtime would be advised to check what pay they have received during their holidays and to seek advice if they think they have been underpaid in any way.

This is a major decision and one which could have a great impact on businesses. If a business employs workers to work a set number of hours a week for a set rate of pay, without any overtime then the ruling will have little effect. However, if your business relies on workers who often work extra hours then there is the scope that this ruling could impact on you. Businesses would be advised to check their contracts of employment and holiday policies and to take advice if you are concerned that this ruling could affect you. While the ruling is likely to be appealed and any final decision is likely to be some time away, in light of this decision it is still possible that claims could be made that would need to be dealt with until they are stayed by a Tribunal. You would be best advised to be proactive here and to review your existing contracts and policies and seek advice if you have any concerns.

If you are an affected worker or if you are a business who wants to ensure that in light of this decision you are calculating holiday pay correctly, please do get in touch with Howells Employment Law department.

Tom Bernard


twitter: @howellsemplaw

Howells Recognition from Chambers UK

Howells Succeed in the High Court of Justice