Overtime and holiday pay

In Neal v Freightliner Ltd the terms and conditions of a freight worker stated that he was expected to work a basic 35 hours per week made up of seven-hour shifts. He could be required to work overtime when necessary. His employment was also governed by a local collective agreement which provided for a nine-hour shift pattern. In reality, the freight worker was largely working shifts of 8.5 or 9 hours and on occasion 12 hours, in accordance with a weekly roster. However, his holiday pay was calculated on the basis of his basic salary and did not take into account the additional hours he was working in line with the roster.

The law says that for the purposes of calculating holiday pay, where a worker’s pay varies from week to week, their weekly pay is averaged over a 12-week reference period. The law currently says that where the worker’s pay in this period includes any overtime paid at a higher rate, this should be reduced to the worker’s basic rate of pay for the purposes of the calculation. The law also says that any hours worked over and above the basic hours the worker is required to work before receiving overtime should be discounted for the purposes of the calculation.

The tribunal’s decision, in line with the ECJ’s judgment in Williams, was that the freight worker’s holiday pay should not have been based just on his basic salary. It held that the law should be read so as to disapply the above current requirements for calculating average weekly pay if holiday pay is to be calculated in line with the relevant European law. As the overtime worked by the freight worker amounted to performance of tasks he was required to carry out under his contract, this should have been taken into account. The same principle applied for the shift premium the freight worker was paid for some of these additional hours.

Commentary

Following the decision in Neal v Freightliner Ltd it seems clear that employers should take into account all the hours employees are actually working and all the payments they are actually receiving when calculating holiday pay, not just their basic salary. If these extra payments are intrinsically linked to the performance of tasks they are required to carry out under their contract they must be taken into account for the purposes of holiday pay.

For more information or advice on this issue, or holiday pay generally, please contact Doug Mullen on 0121 212 7432 or douglas.mullen@anthonycollins.com.

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