27 June 2019 #Employment
By now you will be familiar with the ever-changing developments relating to holiday pay over the past several years.
Legislation specifies that workers have the right to four week’s paid annual leave per year. However, the legislation does not specify how statutory holiday pay should be calculated. Case law developed the concept by first confirming that pay must reflect ‘normal remuneration’. This was then developed further in the case of Williams and others v British Airways plc which said that normal remuneration was basic salary but also remuneration that was intrinsically linked to the performance of the contractual tasks. The case of Bear Scotland v Fulton and others confirmed that compulsory non-guaranteed overtime had to be included in holiday pay, but a question mark was left over voluntary overtime.
In the case of Flowers v East of England Ambulance Trust, the Court of Appeal has now ruled that voluntary overtime should be considered for the calculation of holiday pay. However, this is caveated by the fact that is must be sufficiently regular and settled for payments of it to amount to ‘normal’ remuneration.
In practice this decision means that Employers will need to analyse overtime worked by each individual to decide whether it is sufficiently regular to be included in the calculation of holiday pay for that individual. Employers will need to consider whether they wish to undertake such an exercise or whether they will routinely include all types of holiday pay in the calculation to avoid any administrative expense and risk. However, it is important to remember that this only applies to the first four weeks of holiday pay and employers are free to pay basic salary only for the remaining holiday period. Employers should also keep in mind that from April 2020 the reference period for calculating an average weeks’ pay for variable workers will increase from 12 to 52 weeks and so calculations will need to be revisited.