New shock ruling on holiday and overtime pay

There has be a significantly new change that has been decided by a British Employment Tribunal which means that UK businesses could be faced with millions if not billions of pounds in loss. The Employment Tribunal has now ruled that any overtime accrued by any member of staff must be taken into account when an employer calculates the employees holiday pay.

What Does This Mean?

This new change is based on non-guaranteed overtime. Claims made by employees towards their employer will be limited.

The new requirements will involve additional national insurance and payroll costs for businesses of a variety of sizes, but these necessities will be felt considerably by small businesses. The exercise of having to include these additional payments even when employees are not at work can be a financial blow to small businesses across the UK. The FSB has recently warned that companies may be faced to make redundancies or could even force closure. Many businesses may be concerned about the extra management time and costs involved in reviewing and renewing their employment contracts along with working practices and having to alter payroll systems. This will be a real burden for companies who don’t house a large HR team.

The appeal received by the Employment Appeal Tribunal (known as the EAT) of whom made this ruling were recently brought by the law firm Squire Patton Boggs. This is a firm who highlighted that the EAT had reached 3 primary conclusions:

  • Non-guaranteed overtime will now be required to be taken into account when business employers calculate their employees holiday entitlement. This is primarily with regards to the four week entitlement that is extracted from the WTD (Working Time Directive). The current EU law states that employees are entitled to secure “normal remuneration” for annual overtime and leave would need to be regular to amount to this common remuneration.
  • The WTR who were implemented within the United Kingdom back in 1998 must acknowledge the requirements within the WTD. The Employment Appeals Tribunal highlighted that it was obligated to interpret the WTR as long as possible. This is in relation to its purpose and wording and was planned if necessary to investigate into the WTR to accomplish this.
  • Lastly there will be a limited opportunity for employees to claim back their underpayments of holiday pay. The EAT were capable to conclude that workers were not capable to claim any underpayments for holiday as deducted unlawfully from their payslip, where a time frame of over a three months duration had passed between pay deductions.

This means for employees who choose to work overtime could claim for extra holiday pay. Presently, only a basic pay is considered when calculating payment for holidays. The tribunal also ruled that employees are able to make backdated claims, but for a limited time only. Nevertheless, the ruling could be passed to the Court of Appeal, this means we could expect a final decision in years to come. The decision has extensive implications for businesses where employees are required to do work overtime as a normal part of their job. Lawyers have mentioned that the tribunal wasn’t coherent as to whether the ruling applied to employees who voluntary work overtime.

Implications for Businesses

This ruling will unmistakably bring many implications for businesses across the United Kingdom and to know where you stand it’s recommended that you to speak to a legal professional.

It’s now down to the EAT and other official bodies to agree as to how far claims can go back for employers. It’s possible that a handful of claims may even date back to 1998, when the UK Working Regulations were originally introduced. The government has now estimated that in total, approximately a sixth of individuals currently in employment will work overtime and will be entitled to repayment, which totals up to 5 million people.

For a majority of businesses this may be an additional expense that will need considering into their business, but for many this may cause a serious problem for the continuity of their business. We would always recommend to seek advice from a professional payroll service like CPS Payroll Services. They covered this topic recently here –