Higher cost of holiday pay for employers

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Non-guaranteed overtime must be included in the calculation of holiday pay. An Employment Appeal Tribunal judgment has potentially major implications for employers in respect of both employees and workers by clarifying that:

  • the Working Time Directive (WTD) requires non-guaranteed overtime, ie overtime that the employer is not obliged to provide but which, if the employer offers it, the employee is contractually obliged to perform, to be included in the calculation of holiday pay
  • the Working Time Regulations 1998 (WTR 1998) can and should be interpreted to allow the inclusion of this overtime pay to be included in respect of a worker’s entitlement to the four weeks’ paid holiday (which derives from the WTD) but not in respect of the additional 1.6 weeks’ paid annual leave provided for only in domestic legislation
  • a worker will not be able to bring a claim that an underpayment is part of a ‘series of deductions’ (ie to fall within the more generous time limit provisions for an unlawful deduction from wages claim) where there is a gap between deductions of more than three months — this aspect of the judgment perhaps has the greatest impact as it is likely to significantly limit the extent to which workers can make retrospective claims for any underpaid element of holiday pay (or indeed for unlawful deductions of other types)