In a landmark decision, the Employment Appeal Tribunal (EAT) has held that non-guaranteed overtime must be taken into account when calculating statutory holiday pay. Payments for overtime that a worker is required to work but which an employer is not required to offer (non-guaranteed overtime) should be regarded as “normal remuneration”. Allowances that are directly linked to a worker’s work and are more than merely expenses must also be included.
However, the EAT significantly limited the extent to which workers can make retrospective claims for underpaid holiday. It held that workers cannot use each shortfall in holiday pay as part of a series of deductions (for the purposes of unlawful deductions claims) where a period of more than three months has elapsed between the deductions.
This decision means that, in the future, employers will be required to include such overtime payments and allowances in statutory holiday pay for the first four weeks’ of annual leave. Employers will need to review their staff’s working arrangements to assess whether they have workers who regularly work non-guaranteed overtime or are paid allowances which are more than simply expenses.