How does working extra hours affect holiday pay?

Question

I regularly and consistently work additional hours for my employer over and above my contracted hours. My contract of employment currently states that my holiday pay is calculated on the basis of my normal contractual hours. If I work overtime will this affect my holiday pay?

Answer

 Paul Cowdery, Partner at Clarke & Son replies:

Following a decision in the Employment Appeals Tribunal (EAT), the answer will most probably be yes.

ACAS states that all workers are entitled to statutory minimum paid holiday of 5.6 weeks per year based on their average working week. The Working Time Directive (WTD) also provides for other payments such as shift allowance, on call payments, travel time and unsociable hour payments.

In November 2014 the EAT considered 3 appeals which related to the calculation of holiday pay. It effectively established that for the purpose of calculating holiday pay the employer must include guaranteed and non-guaranteed overtime pay:

  • Guaranteed overtime is where the employer is required to offer overtime to their workers and their workers are also required to work that overtime.
  • Non-guaranteed overtime on the other hand covers situations where the employer is not required to offer any overtime, however the worker is still required to work that overtime.

Where a worker’s pattern of working includes regular and consistent overtime to the extent that their overtime effectively becomes part of their normal hours, then following the EAT decision the calculation of holiday pay will now require the employer to base a week’s holiday pay on a normal week’s pay of that worker.

However if the overtime varies from week to week the employer will base the holiday pay calculation on an average of 12 weeks ending with the first day of the holiday in question.

Employees’ accrued holiday entitlement can be calculated as a percentage, using the total number of hours worked within a specific period. The Statutory minimum paid holiday of 5.6 weeks expressed as a percentage is 12.07. To calculate the accrued entitlement you would use the following equation:

(12.07 x number of hours worked within specific period) divided by 100 = number of hours holiday accrued within specific period.

This particular area is very complex and should a dispute arise over holiday pay we can assist you in calculating the correct amount due. You may also be owed additional pay as a result of previously taken holiday and we are here to help you liaise with your employer or previous employer in this regard.

If you have a query or would like to book an appointment please get in touch with our First Contact team on 01256 320555 or email mail@clarkeandson.co.uk