This post was contributed by Lindsey Hooper, Associate, Norton Rose Fulbright LLP (London)
As mentioned in our briefing posted in December 2014 (Holiday Pay: Where are we now?), there has recently been litigation in the UK in relation to the correct calculation of holiday pay and the factors which should be taken into account. The current position in the UK is that workers must receive their “normal remuneration” during periods of statutory holiday. This means that, depending on the regularity and permanency of such payments, certain allowances, commission and non-guaranteed compulsory overtime could form part of an employee’s “normal remuneration” and therefore should be taken into account in the calculation of holiday pay.
A judgment handed down by the Northern Irish Court of Appeal (the NI Court of Appeal) last week took this one step further. In this case, an employee brought a claim against his employer for, among other things, miscalculation of holiday pay. The employee claimed that an unlawful deduction had been made from his wages by the employer as his holiday pay did not take into account the voluntary overtime he worked (i.e. overtime which his employer requested him to do but which he had no obligation to undertake). At first instance, the Northern Irish Industrial Tribunal (the NI Tribunal) rejected this part of the employee’s claim holding that voluntary overtime should not be taken into account in the calculation of holiday pay. The employee appealed.
In the appeal judgment handed down last Friday, the NI Court of Appeal held that the decision of the NI Tribunal was wrong. This means that, for the purposes of Northern Irish law at least, amounts paid by way of voluntary overtime are capable of amounting to “normal remuneration” and may need to be taken into account for the purposes of the calculation of holiday pay, depending on the particular facts of the case. Although this decision is not binding on English employment tribunals, it is likely to be persuasive.
Unfortunately, and unhelpfully for employers, the NI Court of Appeal did not provide guidance on the test for deciding whether voluntary overtime should be included in the calculation of holiday pay and indeed stressed that it will be a question of fact for each tribunal whether or not the voluntary overtime in question was normally carried out by the worker and was of a sufficiently permanent nature to be included in the calculation.
There will, no doubt, be further case law on this point and employers should also expect case law on whether various forms of performance bonus should be included in the calculation of holiday pay. We will keep you updated on any further developments in this area.