Holiday pay calculations should take regular overtime work into account

The APHC is highlighting a court decision on calculating holiday pay that may affect employers in the heating and plumbing sector. 

In June, a ruling was made by the Court of Appeal in a case involving the East of England Ambulance Service NHS Trust, which ruled that regular and settled voluntary overtime should be included when calculating holiday pay. This ruling is applicable to private businesses who now have to take into account regular overtime when calculating staff holiday pay.

John Thompson, CEO of the Association of Plumbing & Heating Contractors (APHC), explains: “In regular circumstances calculating holiday pay is straightforward enough.  If a staff member receives £500 per working week, then the employer needs to pay them £500 for a week’s holiday.  However, now when a staff member does regular voluntary overtime, so their take-home pay is greater than their contracted pay, the employer needs to base their holiday pay calculations on the staff member’s take-home pay and not their contracted pay.

“The ruling was brought in because staff who do regular overtime or who often worked beyond their contracted hours saw a drop in their pay whenever they took leave. This could imply that staff members rely on these regular overtime payments as part of their remuneration, and the loss of such payments could result in their being a disincentive to take annual leave which would mean the employer is in breach of the Working Time Regulations.”

According to the APHC, employers need to monitor how often and to whom overtime payments are made and make a judgement on whether overtime payments are exceptional and unforeseeable (so not included) or broadly regular and predictable (so included).

It is possible that the Supreme Court could overturn this decision on appeal, but APHC’s legal advisors believe this to be very unlikely.

John Thompson concludes: “Plumbing and heating employers should obtain formal guidance on calculating holiday pay, either from an accountant or legal adviser, or they can contact HMRC directly. APHC members can call our free legal advice helpline by phoning the APHC office on 0121 711 5030 in the first instance.”

 

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