Holiday Pay and Voluntary Overtime – the cost to employers increases again

Posted on: August 9th, 2017

At this time of year it seems all the talk in the office is about holidays. Everyone’s either about to jet off on one, or coming back to reality with a bump on their return from one.
Unfortunately for employers, holiday pay has also been in the news, and has once again become more expensive.

The correct calculation of holiday pay for employees that receive additional payments like commission and overtime has been a thorn in employers’ sides for several years now.
Previous cases have decided that pay received for compulsory overtime must be taken into account when calculating employee’s holiday pay. Most employers have now adjusted their systems to calculate holiday pay on this basis. 

Unfortunately for employers, a recent decision has now extended this principle again to pay received for entirely voluntary overtime, provided this is worked regularly.

This decision means that:

  • If an employee is working regular voluntary overtime as the norm, so say every few weeks or months, this pay now needs to be included in holiday pay calculations
  • Where voluntary overtime is genuinely ad hoc, say a couple of times a year, this does not need to be included.

Those of you that read our updates in 2015 will not be shocked by this decision, as it’s what we predicted in our original guide to the holiday pay changes. It’s nice to be right…

All employers that offer voluntary paid overtime now need to review their holiday pay calculations to ensure that they are complying with their obligations. They also need to consider how best to deal with claims for back pay that may now emerge as employees become aware of their rights.

For more detail regarding the decision and the implication for employers please click here.

If you need any assistance in reviewing your holiday pay arrangements please contact the Employment Team on 023 8057 4343.