Latest nightmare on holiday and variable pay

Latest nightmare on holiday and variable pay

August 6, 2020

The Working Time Regulations 1998 are 22 years old and if I am honest in need a massive overhaul. One area we employers really need clarity is the area of holiday and overtime.

The regulations unhelpfully don’t state how holiday pay is calculated. Nice work legislators!

There have been a number of cases through the courts both in the UK and Europe that have looked at holiday pay and overtime.

“Regulation 13 of the regulations states that a worker should receive a weeks’ pay for a week’s leave.”

We now know that this means an average over the past 52 weeks of work.

Here’s some cases where holiday pay has been tested in the Courts:

In Williams vs British Airways the pilots brought a case against their employer because they received a supplement when flying that didn’t get paid when they took holiday. The Court of Appeal determined that flying supplements were an intrinsic part of a pilots contractual tasks and therefore fell within normal remuneration. However payments that were essentially expenses to cover costs of doing the job did not need to be included.

In Bear Scotland vs Fulton the EAT decided that overtime that wasn’t guaranteed must be included in holiday pay.  Non guaranteed was established to be the overtime that the employee must do if asked. Unhelpfully the EAT offered no definitive decision on voluntary overtime.

In Dudley Metropolitan Borough Council vs Willetts the EAT said that normal remuneration must be paid in holidays to ensure that workers were not discouraged from taking holiday.  For a payment to be ‘normal’ it said the employee had to receive it regularly or on a recurring basis.  Unhelpfully the EAT did not define what regular meant.  It said the voluntary overtime, callouts etc can all count towards pay if they are sufficiently regular or recurring.

In East of England Ambulance Trust vs Flowers in this case brought by two ambulance workers who brought claims for underpayment of holiday pay as it did not include overtime.  In this case the ET said that non guaranteed overtime should be included in holiday pay and voluntary overtime did not.  The EAT said no, both forms of overtime should be included in holiday pay.  The EAT sent the case back to ET to apply the Willetts principle of ‘regular or recurring’.

Then we had Brazel vs Harpur Trust last August which reached the Courts of Appeal. In that case Ms Harpur successfully argued that as a peripetic Music teacher on a zero hours contract working term time only she shouldn’t be paid her holiday pay at 12.07% of hours worked but instead should receive 5.6 weeks based on the average (then calculated using 12 weeks) of the past 12 weeks she had actually worked.

We are awaiting this case to get to the Supreme court as on the surface it means that part time workers can receive more holiday entitlement than full time employees.

In summary employers still lack an updated Working Time Regulations and we do know that every case would need to be established on its merits to see if Willetts principle has been met. Is the overtime we are talking about regular or recurring?Employers could find assessing this very costly in itself.

Therefore perhaps it would it be better to conclude that including regular and recurring overtime in holiday pay calculations moving forward is a sensible idea.

We take the view that non guaranteed overtime will mean that holiday is based on an average. We also consider guaranteed contractual overtime (though it is rare to see in a contract of employment) would also mean that this employee’s holiday pay will be based on an average.

We’ve created a spreadsheet to allow you to calculate the average pay for someone who works irregularly for you. Let me give you an example;

Fred has worked for you for 7 weeks, he works between 40 and 50 hours a week. You add his last 7 weeks hours into our spreasheet and it will calculate the average hours he has worked over the 7 weeks. You can then multiply by his hourly rate when he takes his holiday and have a average week’s pay for Fred.

If Fred had worked for you for 14 weeks but only received work for 7 of those 14 weeks, whilst you need to obtain 14 weeks of data, only the 7 weeks he has worked will count towards his average week’s pay. Again our spreadsheet takes that into consideration.

Don’t forget the new rules want you to go back 52 weeks, you only don’t need to go back 52 weeks if Fred hasn’t worked for you for 52 weeks. If Fred had worked 104 weeks (2 years) you would need to go back up to 104 weeks to find the 52 weeks he has worked.  You’re loving this right!

These new rules remind us that we need to keep records of hours worked each week by our variably paid employees. It means that it is more attractive to have contracted employees with fixed hours each week and with overtime only worked irregularly and therefore not counting towards their holiday pay.

If we can be of any assistance with any aspect of HR including holiday entitlement, please contact us on 01527 306066.




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