A recent case in Neal v Freightliner Ltd, reported in Personnel Today, threatens to change the long standing assumptions made in determining what employees get paid while on holiday. Although the case has been appealed to the Supreme Court there are reasons to expect that a change in holiday pay calculations will be needed.
Hereto employers have been able to pay “normal pay” for holidays without including any overtime element. Going forward overtime pay may need to be included in the calculation of holiday pay; something which the John Lewis Partnership has recognised recently and for which that organisation is providing back pay.
It would be wise to examine whether your employees could reasonably claim that their overtime earnings should be “intrinsically linked” to their contracts. If so, then you may want to assess your potential liability if the Supreme Court decision goes in favour of employees.
There is more detail in the Personnel Today article quoted and this shows that calculating liability could be complex. For example, back pay could apply to all current employees (and recent leavers) who were in employment or who joined since 1998. So it may be more practical to negotiate a formula for providing back pay, but such would need to be contained in settlement agreements to avoid the risk of future Tribunal claims. The ramifications of a seemingly reasonable decision could be huge.
However for now employers may just want to assess the potential cost and allow for it in budgets.