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Employment A-Z



Working Time - Holiday Pay

Neal v Freightliner Ltd ET1315432/2012

Bear Scotland Ltd v Folton and anor EATS/0047/13

Hertel (UK) Ltd v Wood and ors EAT/0160/14

Amec Group Ltd v Law and ors EAT/0161/14

Non-contractual overtime should be included in the calculation of holiday pay.

In all four cases the employees successfully argued that non-contractual overtime should be included in the calculation of a 'week's pay' and therefore in their holiday pay calculations. In each case the ET relied on Williams v British Airways PLC and the ECJ ruling that holiday pay should be 'based on all the components intrinsically linked to the performance of the tasks which they are required to carry out under their contract of employment and in respect of which a monetary amount is paid' as this forms the basis of the calculation of their total remuneration.

Freightliner did appeal this decision to the EAT but the parties reached agreement before the case was heard. The remaining three cases were heard at the end of July/beginning of August. Rather unusually, the Secretary of State for BIS was represented at the hearing.

And the verdict is in. The EAT ruled on 4 November 2014 that the ET had been correct in deciding that non-contractual overtime should be included in the calculation of holiday pay. Essentially the EAT has ruled that any monetary amount paid as a result of doing something intrinsically linked to the carrying out of their job should be included in the calculation.

There is some good news. The ability to submit backdated claims is limited. It was feared that an employee could submit a claim for all holiday since 1998 when the Working Time Regulations came into force. However, the EAT has limited the ability to backdate a claim, ruling that a gap of more than three months between periods of underpaid holiday pay means that the claim in respect of the earlier underpayment would be out of time.

In addition, the EAT ruled that this method of calculation of holiday pay only applies to the 20 days leave set out in the Working Time Directive. The additional leave provided by the Working Time Regulations is not subject to the same calculation. However, note the wording in the Green Book which sets out 'normal pay' which is expressly referred to with regards to Public Holidays.

Vince Cable, Secretary of State - BIS, has announced a task force made up from employers to review the situation and limit the impacts this decision will have on UK Businesses.

The EAT has given leave to appeal this case to the Court of Appeal, so the matter is not settled yet. At this stage, the advice is to look at your current use of overtime both contractual and non-contractual and start to assess your risks. Any claims presented to an ET are likely to be stayed pending the final outcome of these cases moving forward. So you have a choice. Either start paying holiday pay calculated as per this decision or start building a contingency pot of money just in case the appeal doesn't succeed and you eventually do have to make these payments to employees.