Beware overtime calculations might be about to be included in holiday pay

As you know, under the Working Time Regulations 1998 all workers are entitled to paid holiday, currently 5.6 weeks per annum for a full-timer. In 2004 the Court of Appeal ruled that those minority of employees who have guaranteed overtime were entitled to have their holiday pay calculated including that overtime (Barmsey v Albion) but more frequent discretionary overtime has typically not been included in holiday pay calculations.
That may be all about to change following the Supreme Court in Williams v British Airways having questioned that approach. It took the view that any remuneration ‘intrinsically linked to the performance of a worker’s contractual tasks’ should be included. This would extend to allowances that employees might be paid (shift allowance, on call allowance etc) as well as overtime, as opposed to just using basic pay.

This led to some cases which are going to the Employment Appeal Tribunal where the original tribunal ruled in favour of the employees. For example in Neal v Freightliner Neal was granted that overtime should have been included in his holiday pay calculation.

The case is due to be heard in July but in the meantime you might want to consider what the impact will be if this trend is confirmed as the correct approach. Do you pay allowances and commission and overtime? Do any of your ‘expenses’ exceed the actual expense incurred giving workers an element of profit?

You may well need to take further advice on this issue over the summer as it is predicted that a wave of claims may follow the ruling.

**UPDATE** Since the original blog was written, the European Court of Justice has ruled in the case of Lock v British Gas which involved a UK employee challenging the way in which his employer had calculated his holiday based on his basic salary without including the substantial commission payments that he received.  As we might have expected, the ECJ has confirmed that commission should be included in holiday pay calculations, but leaving it to nation states to decide how that calculation should be done.  There is a distinct possibility that the UK courts will now follow this, using the 12-week reference period that is normally used when making calculations for the purposes of the Working Time Regulations.  For those employers whose employees earn commission, this will herald an increase in the cost of employing those employees which all relevant employers should now be factoring in.

This decision is likely to receive a lot of attention in the Press, leading to employees becoming more aware of their rights.  Whilst some employers will undoubtedly wish to wait until there has been a ruling in a UK court, prudent employers will be planning in advance in relation to this issue.