Ruling on Holiday Pay

Taskforce to Assess Impact of the Ruling on Holiday Pay

Vince Cable announces the setting up of a taskforce to assess the possible impact of the Employment Appeal Tribunal ruling on holiday pay.

Business Secretary Vince Cable has today (4 November 2014) announced he is setting up a taskforce to assess the ruling on holiday pay ruling from the Employment Appeal Tribunal.

The Decision

The Employment Appeal Tribunal has declared that holiday pay should include ‘normal remuneration’.

The employees claimed their regular non-guaranteed overtime should be taken into account when working out holiday pay. The original tribunal ruled in their favour, and the appeal tribunal has now upheld that decision.

The cases centred on the interpretation of the EU-wide Working Time Directive. And in particular the Working Time Regulations implemented in the UK in 1998.

Article 7 of the Working Time Directive requires workers to be paid ‘normal remuneration’ during the holiday to which they are entitled under EU law. Not ‘basic hours’ pay which has long been understood to be the entitlement of workers with normal hours of work under the UK’s Working Time Regulations.

The tribunal ruling suggests that UK companies have been interpreting the EU directive wrongly.

Implications for Businesses

Miss A is contracted to work 16 hours per week but regularly works between 24 and 36 hours per week. Her holiday pay has always been based on her contracted hours of 16 per week.

Based on today’s decision her holiday pay should be based on an average of the actual hours she has worked in the weeks prior to the period of holiday.

What You Should Do Now

Although there is little doubt that these cases will continue to the Court of Appeal the position on overtime is now relatively clear. For the moment, where you are not including non-guaranteed overtime in your calculations for holiday pay you will want to adopt a strategy to limit your liability for future claims as well as minimise the threat of backdated claims. This will include:

  • A risk assessment, to identify what type of overtime is worked in your organisation and whether workers are contractually required to work it. You will need to assess the number of workers affected and the amount of overtime worked. You will also need to establish when those workers last took holiday. This will give you a better understanding of the risk you might face and help you decide on what payments to make the next occasion holiday is taken;
  • Deciding whether to implement a policy of including overtime in holiday pay calculations to avoid future claims. Adopting this policy quickly, particularly where workers are contractually required to work overtime if asked, could also assist in establishing a gap of three months for workers who do not bring backdated claims straight away;
  • Deciding whether to make a distinction between the four weeks’ minimum leave under the Directive to which this decision applies, and the additional 8 days leave (and any contractual leave over and above that) for which overtime potentially does not have to be included.

Government To Urgently Review The Judgement

The Taskforce will provide a forum to discuss how the impact on business can be limited. The taskforce will consist of a selection of government departments and business representative groups and

Business Secretary Vince Cable said:

Government will review the judgment in detail as a matter of urgency. To properly understand the financial exposure employers face, we have set up a taskforce to discuss how we can limit the impact on business. The group will convene shortly to discuss the judgment.

The business representative groups on the taskforce include:

  • Confederation of British Industry
  • EEF, the Manufacturers Organisation
  • Federation of Small Businesses
  • Institute of Directors
  • British Chambers of Commerce
  • British Retail Consortium
  • Civil Engineering Contractors Association

The Department for Business, Innovation and Skills will chair the group. Relevant government departments will be invited to attend.

The government has previously argued that overtime should not be included in holiday pay.

Taskforce to Assess Impact of the Ruling on Holiday Pay

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