UK: Holiday Pay Becomes Costlier

By Justin Tarka August 6, 2019
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UK: Holiday Pay Becomes Costlier

​Holiday pay in the United Kingdom (U.K.) was, until recently, relatively simple to determine. Now it has become pricey as courts have included overtime pay in the calculation.

Full-time employees who work five days a week are entitled to 5.6 weeks or 28 days of paid holiday a year. But how do you calculate holiday pay? Courts' opinions have helped explain.

Calculating Holiday Pay

Recent cases have established that the correct basis for calculating holiday pay is the worker's normal pay. The 2015 Bear Scotland Ltd v. Fulton case followed the principle that "normal pay is that which is normally received."  In this instance, the Employment Appeal Tribunal confirmed that overtime that is not guaranteed but that the employer pays anyway should be included in the holiday pay calculation if it is part of the worker's normal compensation.

Most recently, the Court of Appeal for England and Wales also considered whether payments for voluntary overtime—when an employee is free to turn down an employer's request to work extra hours—should form part of the holiday pay calculation. In the 2019 case of Flowers v. East of England Ambulance Trust, an ambulance crew argued that voluntary overtime should count toward normal pay and therefore be included in holiday pay. The Court of Appeal agreed and held that voluntary overtime should be considered if it is sufficiently regular and amounts to normal pay.

There are still questions about what can be considered "sufficiently regular" to be a part of normal pay. The recent trend in cases illustrates that holiday pay should include overtime—regardless of whether the overtime is compulsory, not guaranteed or voluntary—as well as commission, on-call and standby allowances, and travel-time payments if the employee regularly receives them.

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Suing for Past Damages

There's been some concern about the possibility of employees making significant claims for old underpaid holidays. Some assumed that the judgment in Bear Scotland mitigated this impact because the court held that a worker can't sue for old claims if more than three months have passed since a series of unlawful deductions or successive underpayments, even when unlawful deductions or underpayments resurface.

However, that assumption was thrown into doubt by the Court of Appeal for Northern Ireland in its 2019 ruling in Chief Constable of Northern Ireland Police v. Agnew. In this case, the court agreed with the more than 3,000 police officers who asserted that they could challenge a series of old unlawful deductions or successive underpayments when there was a gap of three months or more between the old unlawful acts and current violations. The "gap" is a period of correct deductions and payments.

As a result of this decision, the Police Service of Northern Ireland is reportedly facing a bill for 40 million euros (approximately $44.6 million) relating to overtime payments dating back 20 years. The decision is not binding on tribunals and courts elsewhere in the U.K., but it nevertheless could form the basis of further challenges to the principle established in Bear Scotland.

Justin Tarka is an attorney with Ogletree Deakins in London. 

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