Holiday Pay: One for the HR Team

13 Feb 2015

Last November’s EAT decision is still causing HR practitioners to stop and think if they should be doing something about it. That’s not surprising. I first looked at this in depth about 10 years ago in the context of pilot’s flying allowances so the issue’s been bouncing around for too long.

Pausing for thought is always valuable especially if one can find the space for a wider perspective. In the context of holiday pay I suggest that perspective has something to do with recognising the value of holiday, ensuring that people take it and don’t loose earnings by doing so. Pinning my colours firmly to a liberal masthead on this topic I find it odd that some (anecdotal evidence suggests many) employers are comfortable with paying their employees less for their holidays than they earn while at work. Doesn’t that defeat the object? Isn’t it unfair? It’s even more surprising that the law has been comfortable with this in some situations and that’s my cue to go legal.

It seems to me there are 3 types of overtime; voluntary, compulsory and guaranteed compulsory. Voluntary means what you’d think and it’s completely outside the holiday pay regime. The CJEU is bound to have something to say about this one day so if you’re of a “don’t pay, won’t pay” persuasion I suggest you use this let out and make hay while the sun’s still shining. Guaranteed compulsory is overtime which an employer is obliged to provide and an employee is obliged to work. There can’t be any doubt this is normal pay for normal hours so liable for inclusion in holiday pay. Compulsory is overtime which crops up from time to time and when it does, it must be worked. This is the only class of overtime the EAT examined last year and it said it should be included in the calculation of holiday pay. If you operate with compulsory overtime and don’t include it in your calculation of holiday pay you should be doing something about it now. The EAT has raised expectations and, as always in HR, hoping the issue will go away quietly won’t work!

What’s your starting point? Again no surprises here; an honest appraisal of your contractual position and your practice. If there’s regular voluntary overtime, gently reassure yourself it is genuinely voluntary, that people know this and that it’s not contributing to their holiday pay. On the other hand if the reality is that overtime is or has become compulsory (perhaps through custom and practice) you’re going to have to include it in holiday pay. If regular compulsory overtime has become a comfortable norm the mathematics are easy. It becomes more complex when the overtime hours are irregular because you’ll fall back on the formula of actual pay over the  12 weeks before the holiday. I’d shuffle that one off to payroll and reach for my tin helmet!

Don’t forget you can manage holiday and this can have a significant effect on your outlay. For instance if there’s a pattern of groups of people working substantial overtime at the end of the financial or tax year, during the January sales or whenever your business has it’s traditional spikes, you might want to develop a policy dictating when holidays may be taken so as to manage the financial fall out. Of course you’ll be careful about how you refuse holiday requests and frame your policy but that’s all about managing expectations which you do all the time.