Holiday Pay

News Article

The Working Time Regulations 1998 (WTD) provide that workers are entitled to 5.6 weeks of paid statutory annual leave. Workers must be paid at the rate of a week’s pay for each week’s leave. For fixed weekly hours, this is a straightforward calculation. However, if a worker’s pay varies from week to week then holiday pay is calculated by reference to the average pay (including any guaranteed contractual overtime) over the preceding 12-week period but with any voluntary overtime excluded.

In Neal v Freightliner Limited, the Employment Tribunal (ET) looked at the payment of overtime during a worker’s statutory holiday leave.

Background

Mr Neal’s contractual hours were a basic 35-hour week, although he would often work shifts between 9 and 12 hours. The employer calculated Mr Neal’s statutory holiday pay on his 35 contracted hours with overtime disregarded. Mr Neal issued a Tribunal claim on the basis that his holiday pay should take into account all the hours he worked rather than just his contracted hours.

Employment Tribunal decision

The ET held that holiday pay should be based on Mr Neal’s ‘normal remuneration’. Since this normal remuneration included a certain amount of overtime, this should have been taken into account when calculating his holiday pay. In the circumstances, it was irrelevant whether the overtime was voluntary or not as the performance of tasks during overtime were ‘intrinsically linked’ to the performance of his contract of employment.

Furthermore, an individual can potentially claim for several years of underpayments – in this case, going back to 2007.

Implications for employers

The effect of the Neal decision is that overtime whether guaranteed contractually or not, should at least be taken into account in calculating a worker’s holiday pay. This could lead to a considerable rise in holiday pay bills for many employers and particularly so as workers may make claims for holiday pay arrears going back several years.

Note

As Neal is an ET decision only, it does not have to be followed by other employment tribunals. The employer is currently seeking permission to appeal and the outcome of any such appeal is eagerly awaited.