Holiday Pay and Overtime

We know we are at risk of becoming boring now, we’ve talked about this a lot lately, but the issue of holiday pay and overtime is still cropping up regularly with our clients so we wanted to set out the latest.

It doesn’t make pleasant reading for any business that relies heavily on the use of overtime, but it does, nonetheless, help to dispel some of the myths and confusion surrounding the topic.

Basically, if you can keep in mind these key points, you can’t go too far wrong (and if in doubt, help is at hand at Cluer HR!):

1. Workers should usually receive the same pay while they are on annual leave as they normally receive whilst they are at work. They should not be deterred from taking leave because they are paid less while they are on leave.

2. All types of overtime, including voluntary, must be included when calculating a worker’s statutory holiday pay entitlement, apart from overtime that is only worked on a genuinely occasional and infrequent basis.

3. Commission should be factored into statutory holiday pay calculations.

4. Work-related travel may need to be factored into statutory holiday pay calculations where payments are made for time spent travelling to and from work as part of a worker’s normal pay.

5. A worker’s entitlement to holiday pay will continue to accrue during other periods of leave, including sick leave, maternity or parental leave.

6. Workers must take their statutory 5.6 weeks paid annual leave allowance and can only be ‘paid in lieu’ for this when their employment ends.

There is some good news though!

Firstly, the principle only applies to the 4 weeks of annual leave required by the EU Working Time Directive – not the further 1.6 weeks of annual leave required by UK law, or any additional amounts set out in contracts.

Secondly, (good news if the person making the claim has been with you for years and years), the Deduction from Wages (Limitation) Regulations 2014 means that a claim for back dated deductions from wages for holiday pay made on or after 1st July 2015 are subject to a two-year cap. This means that the period that the claim can cover will be limited to a maximum of 2 years.

There are different rules for calculating holiday pay depending on the working and pay patterns involved. As a general rule, a 12 week reference and pay period would apply. If you need specialist advice we would be happy to help. Call us on 01386 751740 or email [email protected]

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