HR Update - New rules on overtime pay

A landmark ruling from the Employment Appeal Tribunal last month found that those doing regular overtime should have payments for this factored in to holiday pay.

- Does this affect all of an employee's holiday entitlement?

Employees are legally entitled to 5.6 weeks' leave. The non-guaranteed overtime (where the employer is not obliged to offer overtime but an employee is obliged to take it if offered) only needs to be included in the first four weeks' leave. You will need to start including non-guaranteed overtime when making the first four weeks' payments.

- Will an employer be liable for back dated holiday pay?

The tribunal said that rather than being able to claim back to the beginning of their employment, employees should only be able to bring a claim within three months of the original payment being made.

If there is a gap of more than three months between the underpayment of holiday pay and a claim, a tribunal is not able to consider the claim. If an employee has not taken any holiday in the past three months, they cannot bring a claim.

- Does this affect overtime payments where the employee is not contractually required to work overtime when offered?

The tribunal has differentiated between overtime that an employee is obliged to work if offered, and overtime that an employee can choose to work if they wish.

Where an employee only works overtime sporadically - and therefore the additional payments are unusual - it is unlikely that overtime will need to be included in holiday payments.

• If an employee is required to work overtime regularly, and is not really in a position to refuse, it may become an implied term of their employment that they must work overtime. In this case, overtime would need to be included in holiday payments.
• - What should you do going forward?
• - Check your contracts. Are your employees obliged to work overtime if it is offered?
• - Check the regularity of voluntary overtime. Could employees say that the overtime is regular and expected?
• - Also look at overtime patterns. Where possible, you may wish to amend either your overtime patterns or holiday patterns to minimise your potential liability for overtime payments during holiday periods.

See more of our HR Update advice here.