Beware Holiday & Overtime Trap

Beware Holiday & Overtime Trap

By:    Lisa Kennery

Following the recent blog regarding the Holiday pay Judgement we thought it necessary to highlight the key issues that are yet to be resolved.

The issues that are outstanding:

  • Overtime – Although it has been established that required overtime should be included in the holiday pay calculation , there is a question mark over voluntary overtime due to the decision in the Neil v Freightliner case.
  • Commission– The court of justice of the European union held that commission payments are regularly received by the worker and forms part of their normal pay, hence are to be included within the holiday pay calculation. However this has been referred back to the UK employment tribunal so a decision is yet to be made.
  • Other allowances – As the European union view that commission forms part of an employee`s normal pay will other allowances such as an attendance allowance
  • Reference period – The current working time legislation states that to calculate average pay you should look at the last 12 weeks earnings. In the case of Lock V British Gas Trading Ltd , the European court suggested a period of twelve months . The European court justice said it was for individual countries to make the decision on reference periods.  The case is due to be heard in March 2015.
  • Backpay – The employment appeal tribunal did state that where there is a gap of more than three months between “underpayments” this will break the chain of underpayments meaning the workers may lose the right to bring the claim beyond that point. Although they may have the option to take to county court were the claim could go back as far as 1998.

Act Now

What should you as an employer do about this?

Correcting how holiday pay is calculated immediately will reduce the liabilities that employers may face in future. The tips below will help you review your current procedure and aid in a correct process ongoing.


  • Identify what issues will affect your business. Do you pay overtime, commission or other allowances.
  • Although voluntary overtime does not need to be included within the calculation at present it is highly likely to change as it will be deemed as normal pay. Therefore would be a sensible option to include all overtime for the calculation.
  • If paying other allowances are these payments treated as the employees normal pay, and if so , should be taken into account when calculating holiday pay
  • Look at the employees history to review when overtime and other allowances were paid.
  • Review the reference period you should be using, does the recommended working time regulation suit your business or should you consider a twelve month period.
  • The employment appeal tribunal did state that the ruling of overtime only applied to the 4 weeks leave provided for in the working time directive. Therefore you may need to use two separate calculations and rates of pay.
  • You may wish to review the remuneration package currently in place to reduce future costs.
  • Review how you administer holidays currently, do you have the system in place to cope with two separate calculations .

How can we help:

  • Provide professional recommendations to assist in reviewing current policies and procedure
  • Provide reports detailing what payments have historically been made to employees
  • Control holiday pay going forward taking away the administration burden.

For more information please contact me Lisa Kennery or