Barry Warne, partner and head of employment law at hlw Keeble Hawson, advises that a recent appeal tribunal, which ruled that employers must take into account all compulsory overtime – and not just ‘normal pay’ when calculating employees’ holiday pay.
This has widespread financial implications for retailers paying overtime to their staff.
Warne explained: “Retailers, whether high street stores or online sellers, need to be checking now whether overtime is compulsory, particularly for any staff who will be working additional hours over the festive period. They should likewise review their contracts of employment and offer letters to check whether overtime is stated to be compulsory in them. If necessary, employment contracts should be updated as a matter of urgency.”
Under the new ruling, all UK workers will be entitled to holiday pay which reflects compulsory, as well as guaranteed, overtime. However, this will only apply to the basic four weeks’ leave granted under the Working Time Directive. Staff can also make backdated claims, but only if it is less than three months since their last payment of holiday pay.
Employers must also check and correctly factor in other elements of pay that can count towards holiday pay, for example ‘shift premia’ for working anti-social shifts.
Warne continued: “As the ruling applies to backdated holiday pay too, I recommend that retailers decide when they will start correcting underpayments, and whether to do this retrospectively – and without losing face.”
“While it is clear that companies must address this new ruling, holiday pay is only a fraction of total wages, so avoid letting the holiday pay tail wag the overtime dog. For example, asserting that overtime is voluntary in order to save a relatively small amount in holiday pay might result in employees being able to argue at a later date that overtime is not contractual and so refuse to work it.”
Warne expects to see further updates on the ruling over the coming months and some employment experts believe that a further decision may extend to voluntary overtime.
The ruling is also likely to be challenged through the Court of Appeal and the government’s business secretary Vince Cable has set up a working party to assess the impact of the new ruling on employers.