We have new rules on holiday pay and overtime payments to consider, which have the potential to be problematic for employers. This is where staff regularly receive overtime payments.
Previously, if you had an employee on a week’s holiday, you would pay them their basic pay for that week’s holiday. Therefore, you would not have calculated any additional payment for overtime payments they would have received if they’d been in work.
The Employment Appeal Tribunal’s decision has changed this. Although an appeal to its ruling has already been permitted, therefore, things may change again! It has ruled that voluntary overtime should count towards calculation of holiday pay. In other words, holiday pay should include overtime payments. These are what the employee would have received if they had been in work.
What does this mean for you as the Employer? If you have people who regularly work overtime, you need to consider whether you have an obligation to pay them overtime payments when on annual leave.
- Your employees are entitled to be paid a sum to reflect normal, non-guaranteed overtime. This should be part of their annual leave payments.
- You only need pay this for the 20 days’ paid leave that the Working Time Directive awards. However, the additional 8 statutory days’ paid leave that UK workers are entitled to and any additional contractual leave in excess of the 28 days statutory minimum leave is not included in the Tribunal’s decision.
- When an employee who regularly works overtime requests annual leave, you will have to calculate the amount of overtime that they would have worked. Even if they had been in work and add this to their holiday pay for the first 4 weeks’ of their annual holiday.
- Consider whether you need to review the way that you cover additional work. Is it more cost effective to employ more staff. Possibly on a part time or zero hours basis, rather than giving regular overtime. You will then potentially have to continue paying a worker, even when they are not working?
It may be some time before any appeal decision is made. For now, you need to consider the impact of this decision on your organisation. As well as what action you are going to take.
Metis HR is a professional HR Consultancy based in the North West of England supporting clients across the country. We specialise in providing outsourced HR services to small and medium-sized businesses. Call us now on 01706 565 332 to discuss how we may help you.