Holiday Pay

Emily Eccles, solicitor at Mogers Drewett looks this week at how will the recent rulings in relation to holiday pay affect your business?

The holiday season is upon us and with recent employment law developments in relation to holiday pay, now is a good time for employers to ensure they are aware of the implications the recent legislative changes may have on their business going forward.

Since 2004, guaranteed overtime, where an employer is obliged by contract to offer and pay for agreed overtime, has been included in the calculation of holiday pay. However, a ruling in Bear Scotland v Fulton in November 2014 decided that non-guaranteed overtime – being overtime which a worker is required to work but which an employer is not required to offer – should also be included in holiday pay calculations.

This landmark decision applies to overtime for which payment has been made for a sufficient period of time, and therefore is to be considered ‘normal remuneration’. It applies to situations where non-guaranteed overtime is carried out by workers on a regular and consistent basis.

Although the decision considered non-guaranteed overtime, it did not provide guidance for businesses as to how it should be calculated. This has added more uncertainty and complexity for employers as they now need to get to grips with what actually constitutes a ‘week’s pay’ for the purposes of holiday pay calculations, and whether an average wage for the employee should be calculated in accordance with an appropriate reference period.

Since the ruling, the Government has sought to mitigate the adverse effect this decision has on businesses by introducing the Deduction from Wages (Limitation) Regulations 2014. These regulations seek to limit how far back holiday pay claims can go by placing a two year cap on all claims pursued on or after 1^st July 2015. As these legislative protections are a recent addition, it remains to be seen how effective they will be in practice.

A recent case – Patterson v Castlereagh, which was decided at appeal on 26 June – has directly addressed whether voluntary overtime (being overtime which a worker is not contractually obliged to do) should be included in statutory holiday pay. This judgement has now opened the door for the inclusion of voluntary overtime in holiday pay calculations, but the tribunal has stressed that it will be a ‘question of fact’ for each tribunal to decide based on particular circumstances of individual cases.

Although this appeal was in Northern Ireland, where decisions are not legally binding in this jurisdiction, it will be persuasive and utilised in future case law as the developments in this area of law continue. Employers and businesses therefore need to be aware of the potential ramifications of this most recent decision.

For further information or advice on this subject please call 01749 342 323

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