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Overtime & holiday pay calculation

What you need to know


Overtime and holiday pay calculation

High profile court cases have recently brought the issue of holiday calculation to the fore and specifically whether or not overtime should be factored into the calculation of a worker’s holiday pay. This has not proved to be a problem where the overtime is contractually guaranteed whereby the holiday pay calculation includes overtime, but in recent times the focus has shifted to contractual nonguaranteed overtime and indeed voluntary overtime.

At the core of cases such as the well known "Bear" and “Patterson” cases there has been the question of fact regarding what constitutes “normal remuneration” and what is “regularly worked”. At the heart of these cases is the technical definition of pay / remuneration and how it is interpreted differently under domestic and European law.

The case law situation in GB is very fluid and indeed question marks remain in relation to the consideration of other aspects of regularly achieved remuneration such as commission, shift premium, bonuses and tips.

In GB, case decisions have shown a clear direction of travel in favour of the worker getting these aspects of regular work normal remuneration factored into their holiday pay calculation. The recent (22 February) appeal decision in the test case named “Lock -v- British Gas”, which confirmed the principle that wages earned through results-based commission should be included in the calculation of holiday pay, has not yet settled all questions that pertain to the practicalities of that principle – the case continues.

Nevertheless, the direction of the various case law decisions perhaps demonstrates that the Government in GB had seen the writing on the wall when it implemented legislation such as the Deduction From Wages (Limitation) Regulations 2015 which applied a “backstop” of going back only two years for claims by workers.

In Northern Ireland employers and workers alike are watching how this area of law develops. Regardless of whether you see the matter as one or rights enforcement or risk management, the reality is this is a live issue and could result in a worker litigating either lodging a civil action for breach of contract or a tribunal case for an on-going series of unlawful deductions from wages claim. There are also ramifications for the reconfiguration of holiday pay referencing and calculation system to take account of how payroll defines and calculates regularly worked normal remuneration.

In the meantime we may see legislative developments in this area before long in Northern Ireland.

  • Download our latest employment equality law update (April 2016, pdf, 2.46mb) - This newsletter is produced by the Equality Commission and the Labour Relations Agency and focuses on equality and employment law from a Northern Ireland perspective.

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