Landmark ruling on overtime and holiday pay

Reposted from Accountingweb

As soon as the decision in this case was published, I guessed that employers would be complaining about the administrative burden and how much it would cost them.

Then I thought, hang on a minute, you weren’t moaning when the staff were actually doing the overtime.

Whilst I appreciate that the staff get paid for the overtime, there are a few things to consider…

Using established staff to undertake overtime instead of employing new staff undoubtedly saves the employer recruitment and training costs.

Part time workers only receive an overtime rate (as opposed to a plain time rate i.e their normal hourly rate) if they exceed the usual full time hours. So for example, if a part time worker normally works 25 hours a week, they would have to do an additional 12 hours at plain time rate ( 25 + 12 = 37 [normal full time hours]) and then any further hours worked would attract the overtime rate, such as time and a half or double time depending on the days worked as overtime.

If staff are regularly doing overtime, then this would suggest that the employer has insufficient staff on his or her books and needs to employ some more.

Some employers regularly (and knowingly) flout the working time regulations. If an employee is doing overtime which takes them over 48 hours a week, they MUST (apart from excluded occupations) sign a disclaimer under the working time regulations to opt out (more here)

Using “basic” pay to calculate holiday pay can actually disadvantage employees when it comes to qualifying years for National Insurance purposes (more here)

So, why shouldn’t employees who’ve worked overtime have their holiday pay calculated to include it.

Workers have won an important case at the Employment Appeal Tribunal that overtime should count when calculating holiday pay.

Currently, only basic pay counts when making the calculation.

The ruling could result in some people claiming for additional holiday pay. The tribunal also ruled that workers can make backdated claims, but only for a limited period. Employees will not be able to claim more than three months after the last incorrect payment.

However a final decision on these matters could be a number of years away if the ruling is referred to the Court of Appeal.

The tribunal [2014] UKEAT 0047_13_0411 ruled on three cases: Road maintenance company Bear Scotland v Fulton, engineering firm Amec v Law and industrial services group Hertel v Wood.

The employees originally won their claims and the tribunal has now rejected appeals from the companies.

In coming to his decision, tribunal appeal judge the Honourable Mr Justice Langstaff referred back to a number of cases testing Article 7 of the Working Time Directive (2003/88) that made their way to the Court of Justice of the European Union.

In cases including British Airways v Williams and Lock v British Gas Trading, the CJEU laid down the principle that pay to be received during a holiday “is a natural continuation of the pay which has been received before the holiday began,” the tribunal concluded.

“Since the decision is one of the CJEU I must treat it as of the highest authority,” wrote

“’Normal pay’ is that which is normally received… In my view, therefore, Article 7 requires and required non-guaranteed overtime to be paid during annual leave.”

Having made his decision, however, the judge did not give any directions on how holiday entitlements relating to periods of overtime were to be calculated or administered through payroll and HR systems.

However, he did cite precedents from three UK employment tribunal cases (Tarmac, Bamsey and Lotus) where the employees’ contracts stipulated that “normal working hours shall be taken to be 38 hours per week”. While finance and payroll managers scratch their heads about the implications of the appeal decision, we are likely to see a lot of contractual amendments in the near future.

The British Chamber of Commerce took a  strong stance. BusinessZone reported this statement from BCC executive director of policy and public affairs Adam Marshall: “The pressure being placed on businesses by both the British tribunals and European courts on the issue of holiday pay is becoming unbearable.

“After the worst recession in living memory, with many companies working to reverse pay cuts and invest in their employees, giant new pay claims could be a huge blow to their growth prospects.”

According to the government one-sixth of the 30.8m people in work, around five million workers, get paid overtime.

This morning business secretary Vince Cable said he would be setting up a task force to look into the impact of the ruling.

Stephen Ibbotson, director of business at ICAEW, echoed the Chambers of Commerce by commenting that the ruling has the potential to “seriously impact” growth prospects at a time when business confidence is falling.

“So many businesses that have struggled to survive during the recession and increase headcount will now find that their costs could increase at a stroke, and the increased regulation from the Working Time Directive will not help them along the way.

“There are many questions still to answer – just what exactly constitutes regular overtime? What does this mean for commission-based salaries? We’re at the beginning of a long road of appeals and counter-appeals, which only adds to uncertainty – but in the meantime employers will need to ensure that they make provisions for the increased costs that will undoubtedly occur,” he said.

This entry was posted in Employment Law and tagged , , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s