April 29, 2014

Does overtime qualify for holiday pay purposes?

Recent months have seen a procession of scary holiday pay judgements.

It has been ten years since the Court of Appeal set out useful rules.

In the well quoted precedent case of Bamsey v Albon Engineering, it held that “applicants were entitled to holiday pay calculated only on their contractual 39 hour basic working week, notwithstanding that they regularly worked substantial hours of overtime which they were contractually obliged to do but the employers were not obliged to provide.” The judgement helpfully interpreted normal working hours.

It said: “Where overtime is worked, only that which the contract of employment requires the employer to provide and the employee to do counts as normal working hours for the purpose of calculating a week’s pay.”

The convention has been that “voluntary” overtime is not counted when calculating holiday pay. However, “compulsory” overtime does count. An example might be someone who has to work a Saturday morning on a monthly rota.

The employer requires it and the employee must work it. But where an employer solicits volunteers to work on a Saturday but employees can say no, this would not count as “normal working hours”. It does not matter that the same employees are those who consistently volunteer.

What has changed?

In the case of Williams v British Airways, the European Court of Justice (ECJ) ruled that pilots should receive holiday pay including “additional allowances” and not solely basic pay. The ECJ said that a worker must, in principle, receive normal remuneration during annual leave.

However, it went on to say that where there are several components, it requires a specific analysis to determine what “normal remuneration” means.

Any aspect of pay that is intrinsically linked to the tasks the worker is required to perform, and in respect of which a monetary amount is provided, must be included in total remuneration. In the British Airways pilots’ situation, they received an allowance for time spent flying and this qualified to be taken into account. There was an intrinsic link.

This prompted a challenge by way of the Neal v Freightliner case; relying on the ECJ decision.

This case is still subject to appeal. Somewhat controversially, an employment tribunal decided that all Mr Neal’s overtime should qualify as “normal remuneration” and therefore attract holiday pay. In reality, however, this is an untypical situation. It is not clear whether the overtime Mr Neal works is compulsory or voluntary.

He appears to be contracted for 35 hours per week from Monday to Friday. However, some of the claim relates to working a one in three Saturday shift.

Some revolves around the fact that his weekday shift duration is 9 hours. It appears the employer has created a problem for themselves by operating a shift duration and working week that does not match the contract.

The tribunal decided that the decision in the “Williams” case applied. It considered overtime was “intrinsically linked” and therefore qualified for holiday pay.

The worrying feature of their decision is that they seem to be saying that even if Mr Neal volunteered to do the work, it would still qualify as intrinsically linked, normal remuneration. Given the mismatch between contract and custom and practice, the circumstances appear unusual and somewhat self-inflicted.

Even more recently, a different tribunal considered the case of Elms v Balfour Beatty. Here the tribunal reverted to a worker’s holiday pay being calculated by reference only to basic pay.

Mr Elms’ principal statement set a working week of 47.5 hours. It also said he “may be required to work a reasonable amount of overtime”. As in the Neal case, the principal statement was imprecise.

His weekly shifts were actually a total of 40 hours. The tribunal assumed the extra 7.5 hours related to compensation for unsocial hours. They noted he worked overtime on top. He also received a standby allowance for certain shifts and even a bonus.

Despite his peculiar principal statement, the tribunal accepted that “normal working hours” were 40 per week.

It reverted to the decision in Bamsey v Albon; reinstating previous wisdom that normal working hours are the minimum number of hours the worker must work under their contract of employment, excluding extras such as overtime.

The tribunal also rejected his reliance on Williams v BA. They found no “intrinsic link”. His frequent overtime did not negate the fact that he had “normal working hours”. There was no fixed overtime he must work.

Neither did the tribunal accept any relevance in respect of the standby payments and bonus. As with the Neal case, it is likely that this decision will also be appealed.

Practical advice for employers

In both recent claims, an accurate principal statement would undoubtedly have assisted. Whatever the ultimate outcome of any appeal cases, it is a salutary lesson in ensuring working hours are always properly described and maintained.

Where additional hours are undertaken, employers should ensure they are only “intrinsically linked” to “normal working hours” where that is something that is absolutely required.  It is also important not to let current working arrangements drift away from what is set out in the principal statement of employment.

Further help and support

Further help and advice on this topic is available from our HR Advice Line. Please telephone an adviser on 0845 073 0240 who will be happy to answer your queries.

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