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Overtime and holiday pay

The Employment Appeal Tribunal has now issued its judgement in the case Dudley Metropolitan Borough Council v. Willetts (and others) and has ruled the voluntary overtime payments should be included in the first four weeks of workers’ holiday pay.

This decision will obviously benefit thousands of workers, and increase salary costs to employers.

So, how will this affect you as an employer?

If you have employees who work regular, voluntary overtime, for example, employees on call on a regular basis out with their ‘normal working hours’, or employees who work extra hours every, say Tuesday and Thursday, or at weekends, and therefore the payment for these extra hours has become part of the employee’s (or worker’s) normal pay then payment for these extra hours must be included in the employee’s holiday pay for the first four weeks of that holiday pay per year (pro-rata for part time employees).

Ad hoc or irregular overtime does not have to be included when calculating holiday pay; however if that overtime ‘extends for a sufficient period of time on a regular and/or recurring basis’ and can, therefore, be argued has having become part of the employee’s normal pay, that should be included.

How is the overtime pay calculated?

Where the employee’s pay varies week by week, employers will now be required to work out the holiday pay by averaging the employee’s pay over the previous 12 weeks.  The calculation will require to include any voluntary overtime payments (including any other regular payments or allowances linked to their employment).

The Employment Appeal Tribunal stated that all workers are entitled to exercise their right to take paid annual leave in terms of the Working Time Regulations 1988 and any reduction in salary could be seen as a deterrent to taking paid annual leave.  If workers normally enjoy regular overtime payments as part of their salary, but not during periods of annual leave, this could be seen as a deterrent.

If you have employees who work regular overtime and are unsure how this will affect you or your employees, please feel free to get in touch.

Julie Sullivan, Associate                                                Janet Alexander

Email: Jks@businesslaw.co.uk                                     Email: Jpa@businesslaw.co.uk

Tel: 01383 721 621                                                       Tel: 0141 428 3869

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