Clarification on holiday pay calculation

An Employment Appeal Tribunal (EAT) has found that the overarching principle when paying holiday pay is that normal remuneration must be maintained in respect of annual leave. The principal established is that when taking leave, a worker must not suffer a financial disadvantage. Payments in respect of overtime (whether that is compulsory, non-guaranteed, or voluntary) constitute remuneration. For a payment to count as ‘normal’ it must have been paid over a sufficient period of time. The indication given was that voluntary overtime worked one in every four or five weeks would be sufficiently regular to count as ‘normal’ and should be included.

What is clear is that:

  • Guaranteed overtime should always be included in holiday pay calculations;
  • Non-guaranteed overtime, which is compulsory when offered, should also always be included;
  • Purely voluntary overtime, where there is no obligation to offer it and no obligation to do it if offered, should be included if it is sufficiently regular or recurring so as to qualify as ‘normal’.

The key should always be the overarching principle that workers should not be out of pocket when they take holiday.

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