19 July 2013: Holiday Pay Calculation May Include Overtime Pay
Most employers will exclude overtime pay when calculating the correct rate of holiday pay, but that approach has to be reviewed following Neal v Freightliner Ltd, reported this week.
In that case (following British Airways plc v Williams 2012 ECJ) an Employment Tribunal held that a freight worker was entitled to have overtime payments counted towards his holiday pay. Mr Neal was contracted to work a basic 35 hours per week plus overtime when necessary. In practice overtime work was not voluntary. Therefore overtime should be taken into account when calculating holiday pay.
This won’t be an issue for most employers which either do not offer overtime, or for which it genuinely is optional. However when overtime is effectively obligatory and regular, then the daily rate for calculating holiday pay will be higher as a result.