How to Calculate Overtime for Holiday Pay
Updated ACAS guidance on how to calculate overtime for holiday pay still does not offer employers any clear-cut guidance. Following our previous blog on employment tribunal cases, in this article, we focus on the subject of overtime for holiday pay.
ACAS guidance – overtime for holiday pay
The guidance states that “All overtime worked should be included when calculating a worker’s statutory holiday pay entitlement”, with the exception being where it is worked on a “genuinely occasional and infrequent basis”. This does not provide for any practical indication of how to calculate overtime for holiday pay and simply states “all Court decisions are case-specific”.
In the case of Willetts and Others v. Dudley Metropolitan Borough Council, the employment tribunal found that payments made to the individuals with “sufficient regularity” would be considered as part of their normal remuneration. The Employment Appeals Tribunal noted that “a payment is normally made if paid over a sufficient period of time on a regular basis, say for one week each month or one week in every five weeks, even if it is not paid more frequently or even each week”.
Essentially, an individual should not be put at a financial disadvantage when they take a holiday. There has been significant case law on what financial elements should be included in holiday pay, however, the court decisions are only applicable to the 4 weeks of annual leave (which cannot be carried over into the following holiday year) under EU law provided for by the Working Time Regulations 1998.
Workers also have a further entitlement to 1.6 weeks (which can be carried over into the following year if in writing), which makes the statutory minimum entitlement for a full-time worker of 28 days. Although if employers separate the two, it could make for an inefficient and difficult management of holiday pay for their workforce.
How to calculate overtime for holiday pay.
When an employee is taking holiday and has worked overtime, it is advisable to calculate the average pay for the previous 12 weeks directly before the holiday period. If the employee clearly works overtime on an irregular basis, then this will not have to form part of the payment – for example, an employee working a few overtime hours over a week for stocktaking purposes.
An employee has a 3-month time period to bring a claim for unlawful deduction of wages against an employer and this period of time will also break the series of deductions.
The result of all the highly published case law surrounding holiday payments resulted in The Deduction from Wages (Limitation) Regulations 2014. Any claims for deduction from wages is now limited to a 2-year cap.
Make sure your employee is no worse off financially when they take a holiday. If they have taken one within the last 3 months and you believe they have not been paid correctly, then, ideally, they need to take a holiday within that period and you need to pay them at the correct rate. This will break the series for the purpose of an unlawful deduction of wages claim against you.
If you’re struggling to write HR policies that cover overtime for holiday pay, please contact us. We offer a range of HR services including advice, consultancy, assistance with employment tribunals and retained HR support on a monthly basis
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