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Holiday Pay Update

In a blog in November 2014 we reported that the Employment Appeal Tribunal (“EAT”) held that holiday pay during the four weeks of annual leave required to be provided to all workers under the Working Time Directive (20 days for a full time worker) should reflect any pay received in respect of non-guaranteed (but compulsory) overtime, but that employers may still be able to argue that pay for overtime which is genuinely voluntary need not be included in such holiday pay, as this point was not determined by the EAT.

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Decision

The Northern Ireland Court of Appeal has now handed down a judgment relating to voluntary overtime. Its decision was that there is no reason in principle why pay for voluntary overtime should not also be included in holiday pay in respect of the four week minimum holiday period – but, as is considered to be the case for non-guaranteed overtime, the voluntary overtime must normally be carried out by the worker and be an “appropriately permanent feature” of the worker’s remuneration to trigger its inclusion in the holiday pay calculation.

This decision isn’t binding on tribunals and courts in England and Wales, but will be of persuasive authority. It was already open to employment tribunals to interpret the law in this way, and the decision will provide them with further encouragement to do so.

Regular overtime

The more regularly employees work overtime, the more likely it will surely be that a tribunal will find that it has the necessary quality of normality and permanence to require it to be reflected in holiday pay. If an employer decides to only take overtime into account when calculating holiday pay if it exceeds certain limits, however, it will face uncertainty as to whether, in the event of an employment tribunal claim, a tribunal would accept that it has not drawn the line too low. There might also be an adverse impact on staff relations with those below the cut-off point.

For more information about holiday pay, or for a fixed price audit in respect of holiday pay arrangements, please contact:

John Merry (T: 01952 211010; E: john.merry@lblaw.co.uk) or

Will Morse (T: 01432 377152; E: will.morse@lblaw.co.uk).