Overtime to be included in holiday pay, tribunal rules

A groundbreaking employment appeal tribunal could mean that UK construction and other employers now need to include overtime pay when calculating workers’ holiday pay. 

The case was brought by the Unite union on behalf of 16 members working for Amec and Hertel as electricians, scaffolders and semi-skilled operatives at power station site in Nottinghamshire. It also involved road maintenance employees at Bear Scotland.

Although the employees were required to work overtime, overtime pay was not reflected in their holiday pay so they received lower wages when on holiday than when at work. Unite said that for some workers, this meant they received less than half their normal pay when they were on holiday. 

The employment appeal tribunal ruling on 4 November, which upheld an employment tribunal decision made earlier this year, centres on interpretation of the European Working Time Regulations, which were implemented in the UK in 1998.

While these give all workers the right to paid annual leave, they do not specify how a worker’s pay should be calculated, which has historically been left to national legislation to determine. 

Howard Beckett, Unite executive director for legal, membership and affiliated services, said: “Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to. This ruling not only secures justice for our members who were short changed, but means employers have got to get their house in order.”

But Adam Marshall, executive director of policy and public affairs at the British Chambers of Commerce, warned: “Firms which have complied with existing regulations are shocked by the thought of having to back pay holiday entitlements – a change they could not have predicted.

“This ruling is damaging for businesses across the UK. Firms could be at risk of incurring significant financial losses, which could force them to close their doors altogether.”

It has been estimated that around five million workers in the UK are paid for overtime and that the ruling could open the door to a significant number of backdated claims. Although the employment appeals tribunal ruled that workers could make such claims, this will only be allowed if there less than three months had passed since their last holiday, or last incorrect payment.

Palmers’ employment law specialist Lara Murray said: “It is expected that an appeal against the ruling will be made to the Court of Appeal or that it will be referred to the EU courts. In previous cases, the European courts have ruled that commission and bonus payments should be included in holiday pay, which may provide a pointer to their potential approach in this matter.

“With either an appeal or referral likely, it may be some years before a final decision is made on whether overtime should form part of holiday pay. In the meantime, employers seeking clarification and advice on the ruling may find it helpful to contact our employment law team.”