Holiday Pay Ruling

Friday, November 14, 2014

You may already be aware that last week the Employment Appeal Tribunal (EAT) ruled on two very significant cases regarding overtime and commission payments, and concluded that in certain circumstances these should be paid during holiday periods. We have prepared a brief summary below outlining the effect of these rulings and what they mean for schools.

When are employees entitled to holiday overtime pay?

The effect of the EAT's ruling this week is that overtime should be paid in holiday periods, or more accurately that it will attract an entitlement to holiday pay in respect of the minimum 20 days of holiday staff are entitled to under European legislation (not the full 28 days of annual leave afforded to workers England) if:

  • it is compulsory or guaranteed
  • it is included in the employees' regular pattern of work (i.e. if they work the extra hours every week or most weeks, even if the number or hours worked is variable).

If overtime is only worked occasionally and on a purely voluntary basis then it can probably be safely excluded from the uplift for holiday pay: however you may take the view that it is easier to apply an uplift to all overtime (or no overtime, if it is only very rarely worked) rather than having to question the nature of the overtime worked on each occasion, and potentially face challenges from employees or unions.

What other payments are affected and does this apply to all school holidays?

As well as overtime, other variable benefits such as commission payments, incentive bonuses, payments for travel time (but not travel expenses), shift premiums and standby payments may also attract an entitlement to holiday pay. We do not think these will be used in most schools and academies but we can provide advice on any specific arrangements that you may have in place. As outlined above, the right to holiday pay in respect of overtime (and other payments) only applies to 20 days of an employee's holiday entitlement, which is the statutory minimum provided by the Working Time Directive (European legislation): not to an employee’s full annual holiday entitlement or to the entire school holiday closure period.

What should we do now?

When handing down the above decision the EAT granted permission to the parties involved to appeal their decision to the Court of Appeal, which is highly likely given the impact of the case. Therefore our advice schools moving forward is for schools to select one of two options:

1. Do nothing – hold off on paying any additional holiday pay for the time being until any appeal is heard by the Court of Appeal. The risk here is that if the Court of Appeal does uphold the EAT decision that the school would then be liable to repay any additional holiday due to staff. There is also a slight risk in terms of existing staff, but it is highly unlikely that any current member of staff would try to pursue non-payment of these sums in a tribunal, particularly given that claimants now have to personally pay a fee to issue any claim.

2. Pay the sums due to staff now and moving forward – the risk here is that if the Court of Appeal does overturn the EAT’s recent decision the school would then have to try to reclaim any overpayment from staff, which is likely to be very time consuming and the school may struggle to reclaim the additional monies paid from staff.

If the school is minded to pay any sums owing shortly you may wish to consider reviewing your overtime policies, with a view to either making additional hours contractual, or tightening up on when overtime will be approved. We would be happy to provide further advice regarding your particular situation.

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