Wednesday 5th Nov 2014 - Kate Hodkinson
Judgment 4th November 2014 – Overtime and Holiday Pay. For several years there appears to have been a conflict between UK regulations and the interpretation of the Working Time Directive regarding the calculation of holiday pay.
The EU Working Time Directive (WTD) states that workers have the right to at least four weeks’ paid annual leave, but does not state how holiday pay should be assessed. However, the European Court of Justice has ruled that the WTD requires holiday pay to be based on “normal remuneration”, including any payments linked intrinsically to the performance of the worker’s.
In the UK, the Working Time Regulations state that workers are entitled to 5.6 weeks’ annual leave. Such holiday is paid in line with the rules on calculating a “week’s pay” in the Employment Rights Act 1996 under which holiday pay for employees who have ‘normal working hours’ is based on basic pay only, excluding other payments such as commission and overtime.
Any changes that might be required under this judgement are only likely to affect the 4 weeks annual leave required under European law.
Firstly, the decision is likely to be appealed. So no immediate drastic action is required. Practice staff would rarely be paid commission for work, so the main issues would relate to overtime and occasionally bonus payments. There is also some clarification needed regarding what type of overtime is covered by this judgement. The ruling relates to compulsory or require overtime and not voluntary overtime that the employee could refuse, however, further judgements may alter this.
There has also been a lot of scaremongering about claims backdated for 16 years – this is also unlikely to be the case and that if back dated claims need to be paid, they would relate to a three month period only. However this is not guaranteed, and there is some work to be done on retrospective claims – some employees may be able to go beyond this period if they can argue that there has been a breach of contract.
There is some uncertainty about how this will apply to employees, particularly those that rely on overtime requirements arising from peaks and troughs throughout the year. Many Practices will offer overtime rates in different ways, so beyond the increased financial burden, there will be significant concern about the lack of clarity on how to do this recalculation, and a need for legal advice about their situation.
A task force is being set up by the Government to look at the decision and to consider the implications for UK businesses. Practices should review their payment systems to see if workers have required or compulsory overtime or are paid bonuses and should wait for the advice from the task force.
ACAS will be updating their guidance over the next couple of days – practices should read this before considering any action.
In addition to the above, FPM members can obtain further information via the FPM website. Alternatively members can also email specific questions about employment issues to email@example.com where your question will be treated in confidence and normally answered (by email) within two working days of submission.