UK: Overtime Payments counting towards Holiday Pay (Sunnyvale, CA) - In the recent case of Neal v Freightliner Ltd an employment tribunal has held that an employee’s overtime payments should be counted when calculating holiday pay if it is ‘intrinsically linked to the performance of his duties’. In this particular case the employee was contracted to work 7 hours per day, however in most days he would work additional paid overtime of between 1 to 2 hours. The tribunal agreed with Mr Neal that the additional work was required for the performance of his role (and therefore ‘intrinsically linked) and therefore the additional pay should be included in holiday pay calculations. British employers historically have compensated periods of holiday (annual leave) with payments based on basic salary only without regard for overtime payments or other shift premiums. As a result of this judgement employers would be required to calculate holiday pay based on an average rate of daily pay taking into account basic salary and overtime payments in the 12 weeks prior to the period of annual leave. Implications
As Neal was only decided at Tribunal level employers are not currently bound by the decision…but it is only a matter of time before the issue is considered in a higher court, especially given that most of Europe have interpreted the EU Working Time Directive in a way that provides for a wider definition of pay and annual
leave payments based on ‘normal’ remuneration. Even if it does become law for many employees the decision will not have any positive impact. Under UK statute overtime does not have to paid – therefore in the absence of a contractual right to overtime payments most professionals / office workers do not receive additional payments and therefore there is nothing to factor when calculating holiday pay. Whilst the case of Neal v Freightliner Ltd dealt exclusively with overtime payments it would be logical to extend this to other payments such as commissions, performance bonuses etc especially where these can be considered contractual rather than discretionary.
For the time being we would recommend that where possible contracts of employment expressly state that overtime is unpaid and that any variable compensation schemes are expressed as being discretionary. For further guidance please contact Nick Corney or Mike Butler in our Employee Relations team. For more information about doing business overseas or to know more about our International HR Services team please contact us. Subscribe to regular International HR alerts from Nair & Co.
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