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Thursday 08 August 2019
by Jackie Emson


Summer is here, and at this moment in time your employees are probably looking forward to activating their ‘out of office’ before jetting off on their summer holidays, safe in the knowledge that their time away from the workplace is covered by the holiday pay they’ve accrued over the year. However, a new ruling could mean employees receive a boost to their holiday pay if they routinely work overtime and non-compliance could end up costing employers more in the long term.      

WHY ARE THE RULES CHANGING ON HOLIDAY PAY?  In 2017, a team of ambulance drivers went to employment tribunal presenting a case against their NHS Trust, highlighting the role that voluntary overtime should contribute to the accrual of holiday pay. During appeal, it was found that the trust had only used their contracted hours to work out their holiday and as a result the drivers were at a disadvantage for the extra time they had volunteered to work for the trust.    

On 10th June 2019, a case brought before the Court of Appeal led to a landmark ruling on how employers must calculate holiday pay from now on.   

The appeal ruling states that employers should include all ‘sufficiently regular and settled’ voluntary overtime in holiday pay calculations.    

WHAT ARE THE CHANGES TO HOW HOLIDAY PAY IS CALCULATED IN THE UK?   Traditionally, employees should have access to 5.6 weeks of statutory leave each year, with overall holiday entitlement dependent on the specific terms of a company contract.  

Holiday pay is based on the average hourly rate of hours worked in a week for full-time, part-time and casual workers. 

Following the ruling, holiday pay should now be calculated using the additional hours worked through overtime that has a regular pattern. The frequency and duration of the overtime is not defined at present, so the decision over which overtime will qualify is left to the discretion of the employer.    

HOW TO CALCULATE HOLIDAY PAY INCLUDING OVERTIME   Holiday pay calculations that include overtime hours will only affect the first four weeks of statutory leave of the 5.6 weeks entitlement.  

If holiday pay isn’t calculated correctly, employers could be asked to backdate payments of up to two years if the case went to tribunal.  

If you’re unsure how much leave an employee is entitled to, the government have a handy online tool you can use to work out holiday pay for a full leave year or part of a leave year.     

I’M A BUSINESS OWNER. WHAT DO I NEED TO DO ABOUT THE CHANGES TO HOLIDAY PAY?   When it comes to working out holiday pay for your employees, you’ll need to:  

• Factor voluntary overtime into employee holiday pay calculations. 

• Implement the new holiday pay rule to the first four weeks of the 5.6 weeks of statutory annual leave UK employees are entitled to under EU law. 

• Define what ‘sufficiently regular and settled’ means in the context of your business. 

• You must let your outsourced payroll services team know about any regular overtime worked by your employees so that holiday pay can be calculated correctly.   

If LWA manage your Payroll Services, we will work with clients on an individual basis to determine the level of support you need, so please do not hesitate to contact Sara Bishop in our South Manchester office on 0161 905 1801.

Alternatively, if you manage your own payroll inhouse and are concerned about the holiday pay calculations in light of recent changes and what steps you need to take, Sara and her team will be happy to help.