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Should your school include overtime as part of holiday pay?

10 November 2014

The Employment Appeal Tribunal (EAT) confirmed last week that, in certain circumstances, overtime should be included in holiday pay. Whilst your teaching staff will not be affected by the ruling, it may apply to other staff, e.g. caretakers and secretarial staff, who are required to carry out any overtime they are offered. It does not apply to any voluntary overtime that an employee may turn down.

The rationale behind this ruling is that an employee is entitled to receive their normal rate of pay during any holiday period, including enhancements. If an employer pays a lesser amount during a holiday period, this may deter the employee from taking holiday.

The EAT’s decision only applies to the holiday entitlement of 4 weeks’ holiday set out in the Working Time Directive (WTD).It does not apply to the additional 1.6 weeks’ provided by our domestic law (the Working Time Regulations 1998) or any additional holiday entitlement set out in an employee’s contract of employment.

To calculate holiday pay when overtime varies from week-to-week, we suggest that a school calculates the average overtime received over the preceding 12 weeks (in the same way that one would calculate a week’s pay under the Employment Rights Act 1996).

As a result of this ruling, it is possible that some employees may have a claim for backdated holiday pay where compulsory overtime has not been included in the payment. This would be a claim for a series of unlawful deductions. A school may potentially be liable for a claim that is based on ‘unlawful deductions’ going back to 1998, when statutory holiday pay was introduced. However, in practice this is very unlikely since the employee will need to show that the last underpayment was within 3 months of the date that the claim was presented and that any other underpayments are within 3 months of each other.

If certain employees are required to carry out overtime (for which they are paid) you will need to ensure that the rate of holiday pay incorporates the compulsory overtime that has been worked.

Schools should carry out a review to identify and calculate their potential liability to ensure that there is a reserve to deal with any claims that may be brought, should an employee be able to show that a series of unlawful deductions has been made. You may also wish to consider making a lump sum payment to affected employees, to reflect any underpayment of their holiday pay (that is not out of time).

We will update you as and when there is further guidance or case law on this point.

Michelle Tudor