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Employment Tribunal Rules Overtime should be included in holiday pay calculations - What does this mean for your business?

Published 11 November 2014

This month’s Employment Tribunal decision upheld that any holiday pay calculated should take into account overtime.  This is an important decision that all Employers need to take into consideration when dealing with holiday pay.

What does the new ruling mean in real terms for Employers?

As the ruling is receiving lots of press attention due to the financial implications for both you as the Employer as well as your employees. It is likely that your employees may have questions for you or indeed may think that they are automatically entitled to “back pay”.

Be prepared: It’s important that you’re managers are aware of how to answer any questions to avoid any confusion.

  • The ruling relates to “non-guaranteed overtime” rather than voluntary overtime.

Qu. What is “Non- guaranteed overtime”?

“Non-Guaranteed overtime” is s overtime which the employer is not obliged to offer but that the employee is contractually obliged to do if offered.

  • Qu. Does the ruling apply to all holiday taken?

The requirement to include overtime only applies to the first four weeks (inclusive of bank holidays) of holiday taken in each holiday year. The remaining 1.6 weeks’ holiday (as required by UK law) or any additional contractual holiday can be based on normal remuneration excluding overtime.

Qu. Is there a time limit for back dated claims?

  • The ruling said that claims could be backdated but only for a limited time period, disallowing claims where there has been a 3 month gap between underpayments.This is likely to be appealed so it’s important to keep up to date with any changes.

 

Employers need to think about must decide how the administration should take place to include overtime pay in the holiday pay calculations. Things to consider could be whether to have a two tier holiday pay or to include overtime in holiday in the full 5.6 weeks /contractual holiday pay.

It is very likely this case will be appealed due to the financial implications for bot h employers and employees, it’s therefore, as always, important that you keep up to date with employment law changes.

Are you up to date and legally compliant with employment law?  Castle Associates provide a comprehensive range of HR services to help protect your business from costly Employment Tribunal Employer Membership Scheme

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For employment law advice or if you are affected or want information and support by any of the issues in this article please give us a call. 

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