Does this affect my business? Yes – it does if you pay any of your workers overtime or other allowances that could be classed as "normal" pay.
What counts as "overtime"? Overtime includes compulsory overtime, and 'non-guaranteed' overtime which the employer was not obliged to provide, but which the worker was contractually obliged to do. ('Voluntary' overtime was not considered but may next be in the firing line).
Do I have to include overtime in holiday pay going forward? Yes, if overtime is sufficiently regular to constitute "normal" pay. However this only affects the first 4 weeks of holiday (including bank holidays) in any year. For overtime which is not regular, the position is open to interpretation.
How should I calculate holiday pay if overtime payments differ week to week? You will need to calculate average payments over a "reference period" - probably12 weeks although no ruling was made.
Can employees make a claim in respect of past holiday pay which did not include overtime? Employees can only make a claim if they have not yet taken 20 days' holiday, including bank holidays, three months before the date they bring a claim (assuming the employee works full time). The reasons for this are explained in the attached article. If any employees have not yet taken 20 days' holiday this year, they may be able to back-date their claims.
What about commission and bonuses? A separate case has looked at when commission and bonuses are to be taken into account for holiday pay. This will mean that they too will need to be considered alongside overtime payments.
What should the business do going forward? You will need to:
- Update your holiday policy.
- Consider alternatives to non-guaranteed or compulsory overtime – such as voluntary overtime or using agency/bank staff.
- Review when you pay commission and/or when you allow staff to take holidays, in order to avoid tactical holiday-taking and windfall payments.
- Look at this year's holiday records to work out if any of your employees can make back-dated claims.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.