You may have seen some of the reports from Tuesday’s ruling from the Employment Appeal Tribunal (EAT) around the fact that employers need to consider overtime when calculating holiday pay so we wanted to set out the facts, some advice and let you know how our payroll software can help you to manage this. This post was updated on 11 November 2014 with further clarification from our legal experts.
6 things you need to know to take care of the holiday pay and overtime ruling
- The ruling from this week’s Employment Appeal Tribunal (EAT) means that all elements of an employee’s “normal remuneration”* should be taken into account when calculating holiday pay. The EAT considered that payments for non-guaranteed overtime – overtime that an employee is contractually obliged to work if offered it, but which it is not obliged to offer – should be included as it forms part of an employee’s normal pay.
- The judgment did not consider whether payments for voluntary overtime have to be included. This question may have to be tested in future tribunals. It is also possible that where overtime is not worked regularly it does not have to be included.
- Overtime and commission earned by your employees only has to be included when calculating holiday pay for the basic four week statutory holiday entitlement under the Working Time Directive
- Employers do not have to include overtime when paying holiday pay for the additional 1.6 week’s holiday provided by the Working Time Regulations or for any additional contractual holiday entitlement over and above the basic statutory four week entitlement
- Employees may appeal for backdated holiday pay claims but will not be able to if there has been a gap of more than three months since they received their holiday pay.
- If you do not to include pay for non-guaranteed overtime and commission payments when calculating holiday pay going forward, an employee may make a claim to the employment tribunal for unpaid holiday pay, but they will not be able to claim if there has been a gap of more than three months since the holiday.
*The Judge said that ‘normal pay’ is simply pay that is normally received by the worker for a sufficient period of time.
Our advice for employers
We would advise you to respond to this new ruling straight away, consider whether your business and employees are covered and whether you should be factoring overtime and commission payments into your holiday calculations with immediate effect.
If you’re not a Sage customer find out more about how our payroll software can help you, here.