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Case Law

Holiday pay should include overtime

This employment tribunal case considers whether the calculation of holiday pay should include overtime payments.

Neal v Freightliner Ltd | 2013

Background

Under the Working Time Regulations (‘WTR’) workers are entitled to 5.6 weeks’ holiday paid at the rate of a ‘week’s pay’ for each week of leave. What is a week’s pay is determined by sections 221 to 224 of the Employment Rights Act 1996 (‘ERA’). Under the ERA (broadly):

  • A worker with “normal working hours” whose pay does not vary is entitled to the weekly equivalent of that pay for each week of holiday.
  • A worker with normal hours but whose pay varies is entitled to weekly pay averaged over a 12 week period. Overtime pay is ignored.
  • A worker who receives overtime pay for work over a ‘fixed’ (or minimum) number of hours is entitled to weekly pay based on the fixed hours only.
  • A worker with no normal working hours is entitled to weekly pay averaged over a 12 week period. Overtime is included.

European case law, which applies to the ‘normal annual leave’ entitlement of four weeks (rather than the full entitlement under the WTR of 5.6 weeks), has concluded that workers should be paid their ‘normal remuneration’, which includes basic salary and remuneration ‘intrinsically linked to the performance of the tasks which [they are] required to carry out under [their] contract of employment’ and therefore overtime pay should be included.

The facts

Mr Neal is a multi-skilled operative for Freightliner Ltd. (He was still employed at the time of the case). He was contracted to work 35-hours per week in seven-hour shifts, plus ‘overtime when necessary’. Mr Neal often worked 8.5 or 9 hour and sometimes 12 hour shifts. He was paid overtime at a premium for the hours worked over 7 hours.

Mr Neal said he was required to work the overtime. Freightliner said Mr Neal could have just worked his 7 hour shift.

Mr Neal’s holiday pay was paid based on a 35 hour week. He claimed that his holiday pay was not correctly calculated and should have included overtime. Freightliner argued, as the overtime was voluntary, Mr Neal had been paid correctly based on his fixed hours.

The employment tribunal decision

Mr Neal’s claim was upheld by an employment tribunal.

The judge concluded that Mr Neal was employed as a multi-skilled operative. He was performing these duties during periods of overtime and his work during overtime was therefore ‘intrinsically linked’. Whether he volunteered or not did not matter.

The judge interpreted the WTR so that Mr Neal’s holiday pay should be calculated not only based on his fixed hours but other work which was intrinsically linked i.e. including overtime.

In practice

This is (potentially) a very significant case which could impact on the amount of holiday pay that must be paid in a large number of cases. People managers should work on the basis that overtime should be included in the calculation of holiday pay (at least for ‘normal annual leave’) and review how future holiday payments will be calculated but also how you might deal with requests for backdated holiday pay. Such claims are entirely possible and could be made on the basis that non-payment was an unlawful deduction from wages and therefore covers a considerable period of time.

That said, this case is an employment tribunal decision. It is not binding on other employment tribunals but will be persuasive. It is possible that a higher tribunal or court may decide differently if and when the point comes before them.

If you need help working out if you need to make any amendments, what amendments you can make and how to go about it, please contact us. Our team would be delighted to help.

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