On 10 June 2019, the Court of Appeal made a ground-breaking ruling on workers’ holiday pay. Simply put, it means employers may have to start paying their staff a lot more. Nicola Mullineux, Content Manager at Croner-i details what the new ruling means for employers.
Matching holiday pay to take home pay
Normally, holiday pay is simple enough to work out. If a worker receives £500 per working week, then their employer pays them £500 for a week’s holiday. The complication arises when the worker does regular voluntary overtime because, in this case, their take-home pay is greater than their contracted pay. The Court of Appeal has found that, in some situations, employers need to factor voluntary overtime into holiday pay which, in turn, means that employers could see a big hike in staff payslips.
Understanding the new ruling
The new ruling came about due to a long-running tribunal case between a group of ambulance drivers and their employer. The drivers regularly volunteered to work overtime due to staff shortages, but their employer only paid the contracted rate for holiday leave, which in turn, left the drivers out of pocket when taking holiday.
The tribunal ruled that bosses should include voluntary overtime in holiday pay if the overtime is “sufficiently regular and settled”, to which the Court of Appeal agreed. It is possible that the Supreme Court could overturn this decision on appeal, but it is unlikely.
Bumping up staff holiday pay
Organisations that rely on staff working regular voluntary overtime will need to bump up their staff holiday pay. There are a few exceptions:
Employers should only include voluntary overtime for the first four weeks of holiday leave in the leave year. After that, employers can go back to paying staff their contracted rate (remember: employees must receive at least 5.6 weeks of statutory paid holiday leave).
Second, the ruling only applies to regular and settled voluntary overtime. So employers should consider whether to give more holiday pay on a case-by-case basis.
It is imperative that employers get this right. If mistakes are made, overheads will soar. Even worse, if the wrong decision is made and voluntary overtime is omitted, an employment tribunal could force an employer to back-pay holiday for up to two years.
Seek further advice
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Last reviewed 26 June 2019