Overtime pay is to be included in the calculation of a worker’s holiday

Posted by Amanda Okill

Senior Associate

On 4th November 2014 the Employment Appeal Tribunal (EAT) handed down a landmark decision in the case of Bear Scotland v Fulton and conjoined cases.

The ruling alters the way in which holiday pay should be calculated for some workers by confirming that non-guaranteed overtime should, along with a worker’s normal remuneration, be taken into account.

The decision will impact numerous businesses across the UK and the government is concerned by its possible implications. Business Secretary Vince Cable announced that he is setting up a new taskforce to ‘assess’ the impact of the ruling.

However, what needs to be appreciated is that the case is not about voluntary overtime. In each of the appeals, the workers were required to work overtime, although it was not guaranteed by the employer.

Until very recently, the UK’s position on the subject has been to restrict a worker’s holiday pay to their basic earnings only.  Any overtime was to be ignored unless it was both’ guaranteed’ and ‘compulsory’, as illustrated in the Court of Appeal’s ruling in Bamsey & ors v Albion Engineering & Manufacturing plc [2004]. Mr Bamsey had a contract requiring him to work 39 hours a week. Very often, at the request of his employer, he worked overtime. The hours were compulsory but not guaranteed and according to the Court of Appeal, the employer was correct in its calculation of holiday pay based on a 39 hour week.

This position has recently been challenged in both our national courts and in the European Court of Justice with reference to the European Working Time Directive (2003/88/EC). The Working Time Directive requires payment of “normal remuneration” during holiday.

Until the decision of Bear Scotland was released , the most widely reported and controversial ruling on the subject by UK courts was that of Neal v Freightliner (ET/2012). Mr Neal’s contract provided for a 35 hour working week. In practice, he often worked overtime, sometimes up to 12 hours a day. His employer referenced his holiday pay to the usual working hours of 35 per week. Mr Neal argued that this approach did not result in a payment of “normal pay” as required by the Working Time Directive. He argued that holiday pay should reflect his actual hours of work. The Employment Tribunal agreed with Mr Neal. The case was listed for an appeal at the end of July 2014 but settled prior to the hearing.  Given that this was a first instance decision, it did not set a definitive ruling on the subject which could bind higher courts. Nonetheless employers feared that it was indicative of a direction soon to be followed. This has proved to some extent correct.

The main points in relation to overtime as set out in the EAT’s ruling in the case of Bear Scotland can be summarised as follows:

  1. Non-guaranteed but compulsory overtime should be taken into account in the calculation of holiday pay.
  2. This calculation applies only to the basic four weeks’ leave guaranteed under the Working Time Directive, not the additional 1.6 weeks under the UK Working Time Regulations;
  3. Claims for arrears of holiday pay will be out of time if there has been a break of at least three months between successive underpayments.

Employers will naturally be worried about this ruling, particularly in industries which rely on overtime.  There are practical considerations on which we will need further guidance. However, employers will need to change the way in which holiday pay is calculated to include compulsory overtime worked by their staff.

Once they have recalculated the holiday pay due and rectified any recent payment errors in the past three months, the workers, if they accept this payment, will be prevented from back claiming for deductions which precede this.

Furthermore, where there is a series of deductions stretching back several years, any gap of at least three months between two deductions  will have the effect of breaking the chain, thus restricting a workers’ ability to bring valuable, longstanding claims for underpaid holiday.




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