Should Overtime Be Used When Calculating Holiday Pay in 2021?

A new ruling on holiday pay made in April 2020 means that overtime should be used when calculating holiday pay in 2021. Desite the ruling on taking overtime into account, many employers still miscalculate employees holiday entitlement. If you are a shift worker and get paid overtime, your employer should calculate your holiday pay based on average earnings over the last 52 weeks.

How is Holiday Pay Calculated in the UK?

Most UK workers are entitled to 5.6 weeks statutory holiday pay each year. Some employers may offer additional holidays as part of a work contract. The calculation of pay varies depending on whether you’re on a fixed salary, or a shift worker. Regular commissions and bonus payments can also have a bearing on how holiday pay entitlement is worked out.

Regardless of shift patterns or hours, holiday pay should mean you get the same pay on holiday as at work.

Holiday Pay For Workers On Fixed Hours

If you are a worker on full or part time hours, holiday pay is calculated using your regular pay rate. If you work full time and are paid £450 a week, your holiday pay will be the same.

Holiday Pay For Workers on Zero Hour Contracts

Some question whether workers on zero hour contracts have the right to holiday pay. The answer is that they have the same entitlement as any other worker. To calculate weekly pay that should be given for holiday the average of the last 52 weeks should be used. Not yet worked a full 52 weeks? It should be based on an average of the weeks you have worked to date.

Calcuating Holiday Pay – Overtime, Commission & Bonuses

If you regularly get overtime, commission and bonuses in your wages, this must be taken into consideration. An employer must include this in the average pay calculation for at least 4 weeks of your annual holiday time.

Help Calculating Holiday Pay

The following resources offer easy to understand advice and further reading on your holiday pay entitlement.

Bear Scotland Ltd v Fulton – An Important Legal Case

On 4 November 2014, The Employment Appeal Tribunal decided the case of Bear Scotland Ltd (et al) v Fulton. This case considered whether employers should take overtime payments into account when calculating statutory holiday pay.

The Tribunal ruled that additional payments such as voluntary overtime and payment for being on stand-by for emergency call outs should be taken into account when calculating statutory holiday pay.

Workers can make a back-dated claim for further holiday pay owed under the new calculation. However back-dated claims can only be made to The Employment Tribunal if it is less than 3 months since the last incorrect payment of holiday pay.

Good or Bad Judgement?

The Tribunal’s judgement in Bear Scotland Ltd (et al) v Fulton has been celebrated by Workers Unions who estimate that 1/6 of UK workers will benefit from this new calculation with increased holiday pay.

Business groups such as The Federation of Small Businesses, The British Chambers of Commerce and The Institute of Directors have however expressed concerns as this re-calculation could create an increase of around 3% to the payroll bill of the members. This in turn could lead to an increased “squeeze” on small businesses, just as the UK economy was starting to turn around. Ultimately if businesses are unable to pay employees, that could lead to redundancies.

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