The Employment Appeals Tribunal has confirmed that UK businesses should factor in overtime when calculating holiday pay, as well as basic salary. A copy of the judgement is here:-
http://www.judiciary.gov.uk/wp-content/uploads/2014/11/bear-scotland.pdf but is likely to be the subject of appeal either to the Court of Appeal or referral to EU courts in Luxembourg for clarification on how European Law should be interpreted.
The Bear vs Fulton case (which incorporates two other cases) centres on the interpretation of the EU-wide Working Time Directive, and in particular the Working Time Regulations implemented in the UK in 1998,whereby three employees of the road maintenance company claim that voluntary overtime pay should have been factored into their holiday pay. The cases have widespread implications for all companies paying overtime to their staff and may result in the UK Government having to amend the annual leave provisions in the Working Time Regulations 1998 to make clear how employers should treat non-contractual overtime pay when calculating paid annual leave. We would advise any member with concerns to take professional legal advice.
Holiday pay ruling will affect rural businesses to some degree says Saffery Champness
Farming and estate business that rely on their staff to work overtime could be affected to some degree by the Employment Tribunal’s ruling yesterday that holiday pay should not take into account just basic pay.
The UK has operated a system since 1998 whereby holiday pay was paid at the basic rate. Now, subject to a possible appeal, that will have to change.
Susie Swift, a Partner in the Landed Estates and Rural Business Group of top 20 Chartered Accountant Saffery Champness, and based in the firm’s Inverness office, says:
There will be some impact on businesses where overtime is a regular feature of their operations, and, if claims for underpayment of holiday pay can be backdated, then this could cause some difficulty. Employers may also restructure to make less overtime work available.
However farming has tended to operate a fairly liberal regime around overtime and I suspect that for smaller concerns there are unlikely to be severe consequences. It may lead to farming businesses reviewing their payroll arrangements and implementing salary-based payments, but they need to be sure however that these comply with minimum wage requirements where appropriate.