In November 2014 the Employment Appeal Tribunal held that “non-guaranteed” overtime should be included in the calculation of holiday pay. The Working Time Regulations 1998, which implements the Working Time Directive in the UK, provide that workers are entitled to 5.6 weeks of paid annual leave.  This goes over and above the requirement of the Directive, which is four weeks. 

However, one of the difficulties which has arisen is exactly how those weeks of paid leave are to be calculated. Some guidance was given by the European Court of Justice in Williams and others v British Airways plc (Case C-155/10) in which it held that holiday pay should not be limited to basic salary under the Aviation Directive but should instead be that which is “normal remuneration”. This would include remuneration which is intrinsically linked to the performance of the tasks that they are contracted to perform as well as any payments which relate to their professional or personal status.

But what about overtime? The EAT which held that “non-guaranteed” overtime should be included for the four weeks provided in the Directive.  This is overtime which is not guaranteed by the employer but is compulsory for the employee. It does not apply to the additional 1.6 weeks’ leave provided by the Regulations.  However, the EAT significantly limited the extent to which workers could make a retrospective claim for what should have been paid.  This has been restricted to a period of three months after the last payment in a series of payments which was not correct. Further, since then the government has introduced The Deduction from Wages (Limitation) Regulations 2014 which provide a two year backstop for claims counted back from the date the claim is presented to cover potential appeals or breach of contract arguments for longer periods. These come into force for claims presented after 1 July 2015.

Recommendation
In the light of this decision, employers might wish to consider undertaking a review of their existing holiday pay arrangements and whether these need to change in the light of the recent case law. This might include consideration not only of overtime but also payments such as commission and travel expenses. Alongside this, employers might also wish to assess exactly where they stand in relation to potential claims for past holiday pay.