More Confusion over Calculating Holiday Pay

In Neal -v- Freightliner Limited an Employment Tribunal considered whether overtime pay should be included when calculating statutory holiday pay.

The employee, Mr Neal, was contractually required to work 7 hour shifts to make up a 35 hour week. He was also required, as and when necessary, to undertake overtime. This overtime was argued to be voluntary by Freightliner Limited, although Mr Neal was always required to work shifts that were longer than 7 hours. Mr Neal received a premium for time worked in addition to his 7 hour shifts, however, his holiday pay was calculated with reference to only his basic 35 hours of work, and excluded any overtime. Since overtime was completely disregarded, the employee issued a claim.

Mr Neal asserted that in the case of British Airways plc & another -v- Williams, the ECJ ruled that holiday pay must be calculated by reference to his pay for the hours he had worked, including overtime. In the Williams case, the ECJ held that workers taking statutory holiday are entitled to receive their "normal remuneration". This includes basic salary and any pay "intrinsically linked to the performance of the tasks" that a worker is required to carry out as per his/her contract of employment.

The Employment Tribunal found in favour of Mr Neal. The judge pointed out that Mr Neal was performing tasks that he was required to do under his contract. The fact that he may have “volunteered” to undertake additional hours did not matter, as such work was still "intrinsically linked" to the calculation of his remuneration as per the Williams case. Further, the overtime pay reflected the inconvenience of working more than 7 hour shifts, which provided an additional link to his hours and pay.

What does this mean for employers?

Even though the Working Time Regulations exclude voluntary overtime and overtime premia from the calculation of statutory holiday pay, the judge in this case went on to find that it could be interpreted purposively. The effect of this decision (if upheld by higher courts), means that employees/workers who regularly work overtime and are paid for it should have their holiday pay calculated to include the overtime payments. If employees/workers irregularly work overtime, then an average of the previous 12 weeks' pay ought to be taken, but will this cause issues, as predicted in this case by Freightliner Limited, with employees working more overtime in the build-up to holiday so their holiday pay increases?

In light of the above, it remains to be seen whether the higher courts will agree this approach, and the effect of it in practice. As a result, its certainly recommended that employers review and update their current practises with regard to overtime and overtime payments.

For further information, please contact Bhavna Patel, either by telephone on 01306 502287 or by email