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Non-Guaranteed Overtime to be included in Holiday Pay

Big happenings this week in the world of employment law in the form of Bear Scotland Ltd & others -v- Fulton & others. In this widely reported casethe Employment Appeal Tribunal (EAT) handed down a much anticipated decision as to whether holiday pay should be calculated to include remuneration beyond basic salary. It was held that this would be the case for the standard four-week annual leave entitlement but not for the additional 1.6 weeks under the UK’s Working Time Regulations 1998 (WTR).

This decision in principle confirmed that the WTR can (and should) be interpreted in a way that gives effect to the requirement of Article 7 of the Working Time Directive that holiday pay reflect “normal remuneration”. The most worrying aspect of this for employers is that it includes normal non-guaranteed overtime, which for some employees, those in the manufacturing sector for example, can be substantial and in some cases close in value to their basic pay.

Given the obvious importance of this decision to employers and employees, the impact it will have on the economy as a whole and of course the reference made to the Court of Appeal, this issue will not be finally decided for some time yet. 

Nonetheless in the meantime here is a brief overview of the issues at hand.

This case established that where remuneration includes components beyond basic salary, all of these must be taken into account when calculating holiday pay if they are intrinsically linked to the performance of tasks which that worker is required to perform under their contract or which relate to their status. For example this includes commission, bonuses for personal performance and overtime. Though payments that are classed as temporary or beyond the scope of normal remuneration do not need to be taken into account when calculating holiday pay.

The EAT did however give hope to employers by placing a time bar on such claims, so they will be out of time if there has been a gap of more than 3 months between each alleged underpayment amounting to a breach of the WTR. This importantly limits the size of potential pay outs and restricts workers with potentially valuable retrospective claims, which was the scenario many companies had feared, with the Government even stating its position as being against such retrospective claims.

Conclusion

People working voluntary overtime could now essentially claim additional holiday pay, though these would amount to speculative claims that would be stayed pending the decision of the Court of Appeal. We are therefore of the belief that it is too early for employers to change their holiday pay arrangements or enter into negotiations about back dated compensation for employees, nevertheless we do recommend that employers carry out audits for their potential exposure to liability in the event that the final result goes in favour of employees.

As always if I can provide you with any further assistance on queries relating to holiday pay or any other issue, please do not hesitate to contact me for a free consultation on 0113 350 4030 orsamira.cakali@scesolicitors.co.uk.


Please note that the information in this blog is to provide information of general interest in a summary manner and should not be construed as individual legal advice. Readers should consult with SCE Solicitors or other professional counsel before acting on the information contained here. 

Samira Cakali

Samira Cakali is a pragmatic and approachable solicitor advocate with extensive contentious and non-contentious experience in the fields of employment law as well as civil litigation, within a range of commercial businesses from SME’s to multinationals as well as senior executives.

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