Overtime should be taken into account when holiday pay is calculated, an Employment Appeal Tribunal (EAT) has ruled.
The EAT’s full judgement, featuring the Bear Scotland vs Fulton case, highlighted that European law said ‘non-guaranteed’ overtime should be paid as part of annual leave and went on to say that UK law could be interpreted to say the same.
Graeme Dickson, associate, employment law at Thorntons, told Recruiter: “You would be looking at overtime that is not necessarily compulsory but the employer can ask for it.”
He added: “I’m not so sure that the judgement would go so far as to say if someone works 9 to 5 they can choose to put in an extra half hour and whether that would be included on the grounds that the employer would be able to say that ‘well we never asked’ you to stay the extra half hour’.”
Also, previous fears that employers may have to fork out millions in back pay, which could date back 16 years to 1998 when the Working Time Directive was enforced, have been abated.
The judgement said that claims for unlawful deductions of wages have to be brought within three months of the deduction or within three months of the last of a series of unlawful deductions. Dickson said: “If there is more than a three month gap between a deduction then it doesn’t count as a series.”
He added: “If an employer can point to where there is more than a three-month gap between one set of holidays and the next set of holidays that could be the break in the chain.”
The Agency Workers Regulations mean that after 12 weeks in a job agency workers are entitled to the same pay and basic contractual terms, including holiday pay. Having to factor in overtime further complicates calculations related to holiday pay, which is often accrued and paid at the end of short-term assignments.
Dickson added: “Previously you may have said that holiday pay would be cut solely on the basic rate of pay. If there is an overtime element to the work that’s being carried out, the workers (from what this decision looks like) are going to have an argument to say ‘well that should be counted as part of my pay for the purpose of calculating holiday pay’.”
Lawyers said the judgement was likely to be appealed. In a statement, Darren Isaacs, partner at GQ Employment Law, said: “This ruling is going to have a profound impact on all UK businesses, costing them billions of pounds and potentially driving some to the wall. SMEs that regularly pay staff for overtime are likely to be the hardest hit.” He added: “It’s almost certain that this result will be appealed.”
In a press statement, John Cridland, director general of the Confederation of British Industry (CBI), said the ruling was a “real blow to UK businesses” that now face the prospect of “punitive costs potentially running into billions of pounds”.
In the Bear Scotland vs Fulton case three employees claimed that overtime should be accounted for in their holiday pay. Two other cases — Amec vs Law and Hertel vs Wood — are also included in the ruling.
Business secretary Vince Cable this morning announced he is setting up a taskforce to assess the possible impact of the ruling on holiday pay from the Employment Appeal Tribunal.
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