How does overtime affect your staff’s holiday pay?
May 04, 2018
If the employees in your business ever work overtime over and above their normal contractual hours, do you know whether this entitles them to extra holiday pay? Overtime hours can be classed under three different headings, and each type has an effect on whether the additional time needs to be included in staff holiday pay.
This forms part of an employee’s contract, and should always be factored into holiday pay calculations.
These are overtime hours which the employee can’t rely on being offered, but if they are, they must accept them. Such an employee would be someone working for the emergency services, and being asked to attend a call-out after the end of their shift. If this kind of overtime happens on a regular basis, to the extent that the employee comes to expect it, then it becomes classed as normal and should therefore form part of holiday pay calculations.
This is overtime which the employee can refuse to accept should they wish to. Historically employers have assumed voluntary overtime does not need to form part of holiday pay calculations, but following recent employment tribunal cases in which the court sided with the workers, a precedent has now been set about how overtime and holiday pay will be viewed in future.
So when should voluntary overtime be included in holiday pay?
If your employees work overtime on a voluntary basis, it’s important to check how often they work extra hours, and whether they expect to work the same amount of overtime each week or each month.
If ever compulsory, non-guaranteed or voluntary overtime becomes ‘normal’, and follows a set pattern over an established length of time, then the rule is that you’ll need to include this in holiday pay calculations for 4 weeks of leave.
Most employees working a pattern of 9-5 hours must get at least 28 days’ paid annual leave, which equates to 5.6 weeks of holiday. This means that you can pay the remaining 1.6 weeks of holiday at your employee’s normal contractual rate of pay.
It’s worth taking pains to get this right, because a disgruntled employee can make a claim for underpayment up to three months after they were last paid, and if you lose the claim it could cost you up to two years of their unpaid wages.
If you have any queries about factoring in holiday pay for your employees, then please contact us and we’ll be happy to advise.