Holiday pay and overtime: a logistical headache?
Meredith Hurst Wednesday, August 7, 2013
The statutory rules concerning a worker's holiday rights are set out in the Working Time Regulations 1998 which implement the EU Working Time Directive. The Working Time Regulations provide that workers are entitled to 5.6 weeks' statutory annual leave, paid at a rate of a week's pay for a week's leave. This is calculated in accordance with the complicated rules set out in the Employment Rights Act 1996. Calculating a week's pay is all very well when its value does not fluctuate but when it does, the calculation becomes more difficult.
Prior to this case(Neil v Freightliner Ltd)the position has been that any overtime pay, commission payments or bonuses would not included in the calculation of a week's pay except in a limited number of circumstances.
The European Directive from which the UK regulations emanate makes no mention of how holiday pay is to be calculated, although the European Court of Justice held inRobinson-Steele v RD Retail Service Ltd that workers should receive their 'normal remuneration'. The ECJ expanded the concept of 'normal remuneration' inWilliams and others v British Airways plc to include remuneration 'intrinsically linked to the performance of the tasks which [the worker] is required to carry out under his contract of employment and in respect of which a monetary amount, included in the calculation of his total remuneration, is provided'. Since this decision there have been arguments that the holiday pay rules of the Working Time Regulations 1998 do not coincide with the European Directive and that certain overtime and commission payments should be taken into account when calculating 'normal remuneration'.
Mr Neal brought a claim against his employer in relation to this very argument. The basic facts are that Mr. Neal was contracted to work a 35 hour week in seven hour shifts however his contract stated he may be required to work overtime when necessary. In reality he never worked a seven hour shift. He always worked longer. He received a premium for the additional time he worked and argued followingWilliamsthat his holiday pay in respect of the European Directive should be calculated with reference to all of his hours worked (including his overtime). His employer's argument was that his overtime was voluntary and thatWilliamsdid not apply as that was only concerned with work which wasrequired to be undertakenunder the contract of employment.
The Judge upheld Mr. Neal's case saying that he was performing his contractual role during these overtime periods and the fact it was 'voluntary' did not mean it wasn't 'intrinsically linked' for the purpose of theWilliams 'normal remuneration' test.
There are several problems that may be encountered in light of this decision. It could lead to workers working excessive hours a few months before they take their holiday (or leave employment) in order to increase their pay. This was touched upon in the Judgment where the Court suggested that to defeat this, employers could regulate the instances where overtime is offered. The position adopted by the ECJ is that any extra holiday rights above those mandatory rights set out in the European Directive (four weeks) are left for member states to decide. This could lead to logistical mayhem as only the first four weeks of holiday are required to incorporate overtime payments.
Neal is only a first instance employment tribunal decision and as such is not binding but it is indicative of how the tribunals view this vexed area. It also would be advisable for employers to start limiting overtime if practicable, amending contracts of employment to make it clear that overtime is not considered when calculating holiday payments and generally considering paid overtime when calculating holiday pay.