Latest Holiday Pay Decision Leaves Employers Needing a Break

Michael Stokes (683x1024)The holiday pay problem faced by employers got just that bit worse as the Court of Appeal in Northern Ireland weighed into the discussion about what overtime has to be taken into account when calculating how much to pay some workers.

The story so far

Employers used to know exactly how to work out the holiday pay for employees when they took time off under the Working Time Regulations 1998. The Regulations pointed them in the direction of the old definitions of “a week’s pay” in the Employment Rights Act 1996. For anyone with “normal working hours” each week, this meant that they only received their basic pay for those hours when they went on holiday. The same method is used for working out a week’s pay for statutory redundancy pay.

Gradually, however, employees who have lost out when on holiday have successfully argued that they should have been paid something more like their “normal weekly pay”. This might include commissions on sales, for example, as in the case of Lock v British Gas. Mr Lock argued that he was discouraged from taking holidays because he was paid so little when he did so. As the right to paid holiday under the Regulations is based on health and safety considerations, the CJEU in particular has been keen to stress that employees should not be put off taking holiday.

In Bear Scotland v Fulton, the EAT took matters further and addressed how overtime pay should affect the calculation of holiday pay. The EAT dealt with guaranteed overtime and compulsory overtime – both situations where the employee had to work the extra hours. Bear Scotland decided that pay for both of these types of overtime should be taken into account when working out holiday pay, probably by taking a twelve week average of pay before the holiday.

What’s new? Patterson v Castlereagh Borough Council

In Patterson the Northern Ireland Court of Appeal looked at voluntary overtime, i.e. where the employee could not be made to work extra hours. It decided that there is no reason, as a matter of principle, why voluntary overtime should not be taken into account in exactly the same way as guaranteed or compulsory overtime.

The Court said that a Tribunal has to make a finding of fact as to whether the voluntary overtime was normally carried out by the worker and was permanent enough to trigger its inclusion in the calculation of holiday pay.

What does this mean?

This is not a decision that means that all voluntary overtime has to be used in the calculation of holiday pay. It is not even a binding decision (on English, Scottish or Welsh Tribunals) that voluntary overtime has to be examined to see if it is permanent enough to be treated as “normal”, but it is definitely a “persuasive authority” supporting that argument and against the idea that voluntary overtime can be disregarded altogether.

Find out more

For more information about this complex issue, please contact Michael Stokes, Employment Partner in Harrison Clark Rickerbys’ Hereford office on 01432 349667 or at mstokes@hcrlaw.com.