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Holiday Pay & Overtime

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Holiday Pay & Overtime

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You may have seen in the news lately that the Employment Appeals Tribunal (EAT) has given its decision regarding overtime payments being included in holiday pay. This may or may not affect your business. If you have staff that work regular overtime then you may well be affected.

Does this affect all of an employee’s holiday entitlement?

No, employees are legally entitled to 5.6 weeks’ leave, the non-guaranteed overtime only applies to the first 4 weeks’ leave. You will need to start including non-guaranteed overtime when making the first 4 weeks’ payments.

Will an employer be liable for back dated holiday pay?

The EAT said rather than being able to reclaim holiday back to the beginning of their employment employees should be restricted to Employment Tribunal rules which means that any claim should be brought within three months.

If there is a gap of more than three months between the underpayment of holidays, the Employment Tribunal is not able to consider the claim. If an employee has not taken any holiday in the last three months they will not be able to bring a claim.

Does this affect overtime payments where the employee is not contractually required to work overtime when offered?

The EAT in this case has differentiated between overtime which an employee is obliged to work, if offered, and overtime which an employee can choose to work if they wish.

Where an employee only works overtime sporadically, and, therefore, the additional payments are not usual, it is unlikely that overtime will need to be included in holiday payments.

If an employee is required to work overtime regularly where employees are not really in a position to refuse it may become an implied term of their employment that they must work overtime and, as such, overtime would need to be included in their holiday payments.

What should you do going forward?

Check your contracts – are your employees obliged to work overtime if it is offered?

Check the regularity of voluntary overtime – could employees say that the overtime is regular and expected?

Also look at overtime patterns and where possible you may wish to amend either your overtime patterns or holiday patterns to minimise your potential liability for overtime payments during holiday periods.

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