In the recent case of Neal -v- Frightliner Limited an Employment Tribunal had to decide whether overtime pay should be included when calculating statutory holiday pay.

Mr Neal, was contracted to work 7 hour shifts, making up a 35 hour week.  His contract also said that he was required to undertake overtime, as and when necessary.  Frightliner Limited argued that this overtime was “voluntary”, although Mr Neal was always required by Frightliner Limited to work shifts that were longer than 7 hours.  Mr Neal received a premium for his overtime in addition to his 7 hour shifts, however, when paying him his holiday pay, this was calculated with reference to only his basic 35 hours; his overtime was excluded.   As such, Mr Neal issued a claim for the difference in pay.

He asserted that the case of British Airways plc & another -v- Williams supported him, as the ECJ ruled that holiday pay must be calculated by reference the hours he had worked, including overtime. In the Williams case, the ECJ held that workers taking statutory holiday must be paid their “normal remuneration”, which includes basic salary and any remuneration “intrinsically linked to the performance of the tasks” that a worker is required to carry out in accordance with his/her contract of employment.

The Employment Tribunal upheld Mr Neal’s claim.  The judge concluded that Mr Neal was performing tasks as required by his contract of employment. The fact that he may have “volunteered” to work overtime did not matter, as such work was still “intrinsically linked” to the calculation of his remuneration as per the Williams case.

What does this mean for employers?

Although the Working Time Regulations excludes voluntary overtime and any premiums for overtime from the calculation of statutory holiday pay, the judge in Mr Neal’s case found that the Regulations should be interpreted purposively.  The effect of the decision means that employees/workers who regularly work overtime, for which they are paid, should have their holiday pay calculated to include their overtime payments.  The effect of the decision also means that if employees/workers only sometimes work overtime, then an average of the previous 12 week’s pay ought to be taken when calculation their holiday pay.

This decision has wide implications, including the concern raised by Frightliner Limited, that employees/workers will undertake more overtime in the build-up to holiday so their holiday pay increases.

As this was the decision of the Employment Tribunal, it is not binding on other Employment Tribunals.  Therefore, it remains to be seen whether higher courts will agree this approach and, more importantly, the effect/cost of this decision in practice.  As a result, its certainly recommended that employers review their current practises with regard to overtime and overtime payments.

For further information or to discuss any issues raised by the article, please contact your dedicated employment Solicitor.