Overtime payments ‘should count towards holiday pay’

An employment tribunal has held that overtime payments should count when calculating holiday pay as long as the extra hours are “intrinsically linked” to the employee’s overall work and duties.

The judgment brings the UK closer to EU law in relation to the Working Time Regulations.

The employee at the centre of the case, Mr Neal, was contracted to work a 35-hour week made up of five seven-hour shifts. His terms also stated that he may have to work overtime when necessary.

In practice, he regularly worked up to nine hours a day. This sometimes increased to 12 hours when he was called upon to cover for colleagues.

Mr Neal believed his overtime payments should be reflected in his holiday pay entitlement. The employer said the overtime was voluntary and so his holiday pay should be based on his basic salary alone.

Mr Neal claimed that the company was making unlawful deductions from his wages in breach of the Employment Rights Act 1996.

The tribunal found in favour of Mr Neal. It held that the overtime he worked was intrinsically linked to the performance of his duties. Whether the overtime was voluntary or not was irrelevant.

It rejected the company’s submission that employees might take on overtime to boost their holiday pay. It said employers were in a position to control the amount of overtime staff worked.

The judgment means that overtime which is an integral part of an employee’s role should be taken into account when calculating holiday pay.

One other point to bear in mind; this ruling only applies to the four weeks’ holiday entitlement available under EU law. It doesn’t apply to the Bank Holidays available under UK law. This could lead to further confusion so it is likely that there will be further legal developments to clarify the situation.

We shall keep clients informed of developments.

Please contact Robert Bedford or John Carter if you would like more information about the issues raised in this article or any aspect of employment law.