Non-guaranteed overtime to be included in holiday pay

The Employment Appeal Tribunal (EAT) in the case of Bear Scotland Ltd v Fulton and others has delivered a landmark decision in relation to the way that statutory holiday pay is to be calculated in order to comply with the Working Time Directive (the Directive).

The EAT held that payments for overtime which a worker is required to work but which an employer is not required to offer (non-guaranteed overtime) is "normal remuneration" for the purposes of Article 7 of the Directive, and the Working Time Regulations 1998 (WTR 1998) must be interpreted to achieve this. This means that non-guaranteed overtime should be taken into account when calculating holiday pay for the purposes of the minimum four weeks' statutory annual leave required by the Directive (set out at regulation 13 of the WTR 1998). This does not apply to the additional 1.6 weeks' leave provided by regulation 13A of the WTR 1998 which remain subject to the "week's pay" provisions of the Employment Rights Act 1996 under which only compulsory, guaranteed overtime is taken into account in respect of workers who work normal hours.

However, the EAT significantly limited the extent to which workers can make retrospective claims for underpaid holiday. It held that workers cannot use each shortfall in holiday pay as part of a series of deductions (for the purposes of unlawful deductions claims) where a period of more than three months has elapsed between the deductions. Because the additional 1.6 weeks' leave does not have to include non-guaranteed overtime, this may mean that it is easier to show a break in the series of deductions of more than three months because the additional leave will be paid at the correct rate.

The EAT has given the parties leave to appeal, noting that the series of unlawful deductions point is "arguable as well as of public importance".

Following the decision the government has announced that it is setting up a "taskforce" to assess how the impact of the decision on businesses can be limited.

The taskforce will consist of government departments and seven business representative groups including the CBI, EEF and the Institute of Directors. No timescale has been set for the taskforce to report, although the government has said that the group will meet shortly to discuss the judgment.

For more information about this, please contact our employment team on 0115 9888 777.

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