Insight from the experts, part 5

Sue Parfett considers the implications of the decision that regular overtime should be factored in the calculation of holiday pay

As we start 2015, I intended to review what has happened in 2014 and what is likely to affect the food service business in coming months.

However, everyone was probably caught unawares by the case heard in the Employment Appeals Tribunal (EAT) of Bear Scotland and others v Mr Fulton and others right at the end of the year. As this could be a significant additional cost, I decided that it may be a worthwhile subject just to spend a bit of time on. As with most cases, there should be a certain amount of caution taken against believing what is written in the headlines. These are attention-grabbing, so always make sure you get good advice. There will be many interpretations and pages written in coming weeks and this is intended to be a simple overview for the lay person. But it should be enough for you to ask a few questions of your legal experts.

The decision was that regular overtime, referred to as “normal”, should be included in holiday pay, which historically has been paid at the basic rate. This has thrown the proverbial cat among the pigeons. The “holiday pay” in question is only the compulsory four weeks covered by the Working Time Regulations. The additional 1.6 weeks awarded in the UK does not apply.

The overtime circumstances that apply to this decision are confusing. The case only referred to “compulsory” overtime that an employee was obliged to do. So if the employee could decline to work additional hours when offered, this was not covered in this decision. Just because it wasn’t referred to doesn’t mean it won’t apply. As “normal” overtime is usually included in EU calculations, it would be safe to say that if overtime falls in to this category, even if not compulsory, it also probably should be included for holiday pay.

What is “normal” overtime? This is one of those phrases loved by the legal profession so they can talk at (chargeable) length without there being a definitive answer. It will probably mean overtime that is regularly paid on enough occasions to make it normal. The previous 12-week period is often accepted as the period over which to measure payments. This could mean that holiday booked after a period of high levels of overtime will result in a higher payment.

There doesn’t seem to be any restriction on paying holiday pay at the time the overtime is paid, but I would make the proviso that it is identified separately on the payslip. This would add 8.33 per cent (at the compulsory four-weeks holiday rate) to this payment – remembering, of course, that infrequent voluntary overtime is not included in this decision. However, other regular payments should certainly be considered such as shift payments, bonuses or other payments intrinsically linked to the job.

If that wasn’t enough, you then read that claims for back pay could go back to 1998! Then the judgement referred to this only applying when holidays were taken in the last three months. As most schools fall into this category, calculating back pay is certainly a serious consideration. The EAT has granted leave to appeal so some further clarity will be forthcoming. Wise owls believe it is unlikely to be applied further back than a year, but there is still uncertainty around this. However, it would be worth applying the requisite payments going forward.

The whole thing is serious enough for the government to set up a taskforce to assess the effect on businesses. In the meantime employers can consider using agency or temporary employees, never a very good solution for the catering service in my opinion. However, building in “annual hours” or paying higher salaries on contracts for which overtime isn’t paid may be useful considerations where overtime is a significant enough part of the labour bill. 

Sue Parfett is managing partner of The Brookwood Partnership W:

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