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Legal Services
Holiday pay – are you getting it right?
By Emma-Louise Hewitt (pictured), head of employment law at Sydney Mitchell
their system. Now employees are looking at their payslips to check what they have been paid so that they can start saving for the next one! So, what is holiday pay? Holiday pay is based on an
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employee’s week’s pay. If the employee work shifts, or has no normal working hours, then it is calculated by using the preceding 12 weeks of pay to get the average weekly pay for that employee. But, from 6 April 2020 the reference period for
determining that week’s pay for holiday pay will be increased to 52 weeks from the current 12 weeks – put that date in your diary.
Holiday pay should also include payments for the following: • Commission payments • Incentive bonuses • Overtime pay • Productivity/performance bonuses • Shift allowances and premiums • Standby payments and payments for emergency call out duties
• Travel and other allowances that are treated as taxable remuneration.
In this article I will be focusing specifically on
overtime payments. Most employees work the same number of hours,
usually 9am to 5:30pm Monday to Friday and receive at least 28 days paid annual leave, which is the equivalent to 5.6 weeks holiday a year. So what happens when your employees occasionally
work overtime? Do you need to include this in holiday pay? And what type of overtime can be claimed? It may seem complicated at first glance, but once
you understand what the different types of overtime are, as well as what the law says about each, it will all fall into place.
There are three times types of overtime: 1. Compulsory overtime - the employees must work overtime because their contract says so and you will need to include overtime in holiday calculations.
2. Non-guaranteed overtime – you are not obliged to offer this, but when you do, the employee must accept. If this occurs on a regular basis and follows a regular pattern, then it could be classed as “normal remuneration” by an Employment Tribunal, so should be included in the holiday pay calculations.
66 CHAMBERLINK September 2019
o holiday season has been and gone, schools are back, out of offices are off and the sangria consumed on the all-inclusive holiday has left
3. Voluntary overtime – you leave it up to the employee to decide if they want to work it or not. In the same way as non-guaranteed overtime, if the pattern of voluntary overtime extends for a sufficient period of time on a regular or recurring basis to justify the description ‘normal’, it is for the Employment Tribunal to determine whether the work is sufficiently regular and settled for payments made to amount to normal remuneration for the purposes of calculating holiday pay. Again, if so, this should be included in the holiday pay calculations.
Now you know what type of overtime the employee
is working and whether or not it has to be paid. So going forward, if your staff work overtime, look at how often this occurs, and whether they expect the same amount of overtime each week or month. Note that, when compulsory, non-guaranteed and
voluntary overtime follow a regular pattern over a lengthy period of time, you’ll need to include them in holiday pay calculations for at least four weeks of leave (based on a full time employee). The reason for this is Employment Tribunals use the EU Working Time Directive, which is four weeks’ leave. The UK Working Time Regulations is 5.6 weeks. So if you wanted to, you could pay the remaining 1.6 weeks of holiday pay at the normal contractual rate of pay. However, if your employees believe that they are
being underpaid their holiday pay, they can make a claim within three months of the last underpayment to the Employment Tribunal. If they win, you could end up paying out up to two years’ worth of unpaid wages.
‘So what happens when your employees occasionally work overtime? Do you need to include this in holiday pay?’
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