There has been a landmark case decided by the Employment Appeals Tribunal which suggests that employers should be paying workers their base pay plus overtime while they are on holiday. Whilst it has been less well publicised, this could also include commission, travel pay and other similar payments. The BBC website provides a summary. But what does this actually mean for employers?
Well, essentially you have to provide employees and other workers with 5.6 weeks holiday a year, including public holidays, which works out at 28 days for full-time employees. Previously most employers paid employees at their basic rate while they were on holiday. This ruling means that employers should include regular overtime, commission and other payments when calculating holiday pay, so that employees don’t have a drop in pay when they are on leave. Technically this only applies to 4 weeks out of the 5.6 due to different legislation governing the leave allowances, although administratively this would be difficult to manage. But it’s a good idea to amend any policies that you have on annual leave to reflect this.
Whilst this seems straight forward, many employees won’t have a standard amount of overtime that they work each week. So how do employers calculate holiday pay in these circumstances? As the case has only just been announced, there aren’t any details or guidance available yet. However, a sensible approach might be to apply the same rules as for employees who don’t work regular hours. Employees who have zero hours contracts or other forms of variable hours receive holiday pay based on an average of what was worked over the previous 12 weeks. This approach could be used to calculate holiday pay where variable amounts of overtime are worked or commission earned. This could be tricky as employees might try to increase their hours in the 12 weeks prior to going on holiday, and equally employers may decide not to offer overtime during this period.
There have been concerns raised regarding huge claims for back pay. Under Employment Tribunal rules, there is a limit of three months to submit claims, which limits the potential. Also, employees have to pay a fee of £160 to submit a claim and a further £230 for the claim to be heard, so they might consider that it is not worth it. In theory a claim could be submitted under breach of contract, which could go back 6 years, although it may be difficult to prove a breach of contract. Trade unions may help employees with these claims, otherwise employees may need to get assistance from solicitors.
The Department for Business, Innovation and Skills have announced that they will be setting up a taskforce to examine the impact of the ruling on businesses.
Looking forward, the long term impact means that employers may choose to use temps or other solutions to cover overtime, to avoid this increased cost. Concerns have been raised that this additional cost could have a significant impact on smaller businesses, causing some to go out of business. Or it may lead to an increased use of zero hours contracts, which means less stability for employees. At the moment it’s a matter of “wait and see”.