HR BLOG: How does working overtime affect holiday pay?

Working overtime will build up holiday pay

The latest in a series of rulings has now been announced. The Employment Appeal Tribunal (EAT) has confirmed that voluntary overtime is the same as other paid overtime and must be taken into account for holiday pay.

The case was brought against Dudley Council by a group of employees responsible for the repair and maintenance of council houses. They worked a set number of hours per week which were their ‘normal working hours’. But every month or so they were on call and worked additional voluntary hours.

The additional voluntary hours they worked didn’t accrue holiday pay and the workers argued this went against the Working Time Regulations 1998. This has been the persuasive argument in all the cases. Employees and workers must not be deterred from taking holiday – and having less money during holiday time could be a deterrent.

How much holiday pay?

Employees and workers are entitled to paid holiday leave. This accrues from their first day with the company and continues even if they are absent through sickness or maternity leave.

The amount will vary according to their contract of employment. But the minimum is 5.6 weeks, which includes bank holidays and is pro rata’d for part time staff.

How to calculate holiday pay is one of the most frequently asked questions to our advice line.

Type of work Hours Holiday pay
Fixed pay Fixed hours A week’s holiday pay equals their weekly wage
Shift work Fixed hours A week’s holiday pay equals the average number of weekly fixed hours a worker worked in the previous 12 weeks at their average hourly rate
Casual work Zero hour contracts and casual A week’s holiday pay is the average pay a worker got over the previous 12 weeks (in which they were paid)

What must be included in holiday pay?

Very occasional overtime isn’t included in this ruling. However, be careful.

The EAT rejected the argument that normal weekly pay didn’t include the voluntary overtime. This is because it was only worked every month or so and wasn’t a regular working pattern. Saying that, it doesn’t have to be every week for it to be considered regular (e.g. seasonal overtime such as Christmas).

This means that all other overtime must be accounted for, as well as regular on call payments and commissions. Payment in lieu of holiday is not allowed, except when a person leaves the company.

Why is this a big deal?

There is no doubt this will increase the wage bill and potentially be an administrative headache. We may also see a rise in claims for loss in previous underpayments. Fortunately, the courts have limited this to two years.

If you’re concerned about how this might impact your business, please get in touch with your local HR Dept.

Alison Schreiber runs The HR Dept Durham and Darlington franchise, and works with a number of businesses across PBP. For more info, visit HR Dept Durham and Darlington or call Alison on 01325 526036 or 07535 853226.