CourageousHR | holiday pay calculations for employees

Employers are urged to examine their holiday pay policy, following a recent ruling by the Employment Appeal Tribunal (EAT) that voluntary overtime must be included in the calculations.

In Willetts and others v Dudley Metropolitan Borough Council, 56 council workers successfully argued that deducting this element from their holiday pay was unlawful. The tribunal ruled that “normal pay” must be included, which is the first binding decision on the matter in the courts in England and Wales.

The decision means that the days when all staff could expect while taking holiday was their basic salary are well and truly over. About two years ago, the courts ruled that compulsory overtime must be factored in, but the EAT has taken the direction of travel even further. Holiday pay must now be calculated so that it reflects average overtime, including voluntary overtime.

It is now defined as the average remuneration in the twelve-week period immediately prior to the taking of the holiday, including overtime payments, as well as things like split shift or evening/night shift pay and commission.

However, where voluntary overtime rarely features in the staff member’s work pattern, an employer might be able to make the case that payments are insufficiently “regular and settled” to justify being treated as “normal remuneration”. In these cases, they should not feature in holiday pay.

Like so much of employment law, this is a complex, fluid issue and it is far better to prevent problems than have to resolve them later. Employers are recommended to protect themselves by taking the advice of a respected legal practice with an acknowledged track record in the field on how the ruling affects them and how to implement fair and legal holiday policies.

Author bio:

Barry Warne heads the Employment team at hlw Keeble Hawson, of Sheffield, Leeds and Doncaster. Areas of specialism include TUPE, Employment Tribunal advocacy and Executive Severances.