Groundbreaking case overhauls holiday pay rules

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Earlier in June, the Court of Appeal made a groundbreaking ruling on workers’ holiday pay: voluntary overtime should contribute to holiday pay calculations. This means you may have to start paying your staff a lot more. Here, the MIA’s trusted Business Helpline Partner, Croner, explains everything you need to know…

Holiday pay goes up for thousands of workers

The Court of Appeal has ruled that voluntary overtime should contribute to holiday pay calculations.

And if that sounds confusing to you, don’t worry. You’re not alone. Read on to find out what the new ruling means for your business.

Matching holiday pay to take home pay

Normally, holiday pay is simple enough to work out. If a worker gets £500 per working week, then you need to pay them £500 for a week’s holiday.

But it gets complicated when your worker does regular voluntary overtime. Because in this case, their take-home pay is greater than their contracted pay.

Now, the Court of Appeal has found that, in some situations, you need to factor voluntary overtime into holiday pay. Which means you could see a big hike in your staff’s pay cheques…

Why have the rules changed?

It’s because of a long-running tribunal case between a group of ambulance drivers and their boss.

The drivers regularly volunteered to work overtime due to staff shortages. But their boss only paid the contracted rate for holiday leave. This left the drivers out of pocket when taking holiday.

The tribunal ruled that bosses should include voluntary overtime in holiday pay if the overtime is ‘sufficiently regular and settled’. And the Court of Appeal agreed.

It’s possible that the Supreme Court could overturn this decision on appeal, but it’s unlikely.

Do I need to bump up staff holiday pay?

If you’re one of the thousands of UK businesses that rely on staff working regular voluntary overtime, then the answer appears to be yes. With a few exceptions.

Firstly, you only need to include voluntary overtime for the first four weeks of holiday leave in the leave year. After that, you can go back to paying your staff their contracted rate (remember: employees must get at least 5.6 weeks of statutory paid holiday leave).

Secondly, the ruling only applies to regular and settled voluntary overtime. So you need to consider whether to give more holiday pay on a case-by-case basis.

And you need to get this decision right. If you make the wrong call and overpay staff, your overheads will soar. Even worse, if you make the wrong decision and don’t include voluntary overtime, an employment tribunal could force you to back-pay holiday for up to two years.

How to get holiday pay right

Croner’s employment law experts help you make the right decision on holiday pay.

We quickly review your staff’s work hours and their holiday entitlement and give you instant advice on whether you need to pay staff more or not.

And if you’re at risk of breaking the rules, we tell you exactly what you need to know to keep your business safe.

Speak to an expert

Find out how the new rules impact your business and free yourself from the worry and risk of calculating holiday pay. Speak to a friendly Croner expert today.

As part of your membership with the MIA you can speak to a Croner expert for help with any of the above issues and get free in-depth, tailored advice. Email alice@mia.org.uk or call 01403 800500 for the exclusive Business Support Helpline scheme number.

www.croner.co.uk