As we enter the Christmas trading period, a blanket ban of all overtime seems unthinkable. However, that was one of the concerns raised ahead of a landmark ruling on holiday pay last week.
Paul Gillen, an employment partner at international law firm Pinsent Masons, says the ruling – handed down last Tuesday – may not require such dramatic measures, but does give HR directors in the sector cause to urgently reconsider their approach to overtime and other elements of variable pay.
“This week’s case concerned the correct calculation of holiday pay, and more specifically whether variable elements, including ‘non-guaranteed’ overtime, should be included in the calculation. The position now is that certain types of overtime, namely compulsory overtime and non-guaranteed overtime, should be included in how holiday pay is calculated. There is no firm stance on purely voluntary overtime,” says Gillen.
That means – depending on the employee contract in place – if you have a member of staff who does overtime for several weeks in November and December, then takes the first
fortnight of January off, they may well be entitled to holiday pay based not on their basic salary, but on the amount earned in the period prior to going on annual leave, when their earnings are unusually high.
While that will mean a modest increase in benefits for a single employee, taken as a whole across a large workforce, the costs will be significant.
Despite that, Gillen says the decision is not as bad for retailers as had been feared. Claims for back pay going back years had been one possible outcome of the case, but that disastrous scenario has been averted – for now. The ruling is not the end of the story because appeals remain a real possibility.
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