Thorny HR Issues in the UK: Leave, Holiday Pay, and Holiday Pay Overtime

Holiday Pay Overtime in the UK

Everyone who is employed in the UK is entitled to paid annual leave (that’s why it’s called statutory leave) – otherwise known as holiday pay – even those who work for an agency, have irregular hours or are on zero-hours contracts. How much leave should they get? How does this relate to any overtime they’ve worked? Can people be paid in lieu of taking holiday? And does doing overtime mean employees should get more leave? This blog post answers these questions and others.

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Taking Holiday in the UK

How Much Holiday Can Workers in the UK take?

In the UK most workers (here’s a definition of what a worker is because it’s not necessarily as obvious as you’d think…) are entitled to 5.6 weeks or 28 days of paid holiday a year. As an employer that may seem like a lot, but you can include bank holidays in this total. Since there are eight bank holidays (also called public holidays) in England and Wales, if you require employees to take leave on these days you can drop the total days of paid leave to 20 days (or four weeks) per year. You don’t have to give employees bank holidays as paid leave, but if you don’t, then they are entitled to the full 28 days.

Employers can tell their staff when to take leave (the gov.uk site on ‘booking time off’ confirms this) as in the bank holidays example above. Some organizations may choose to close between Christmas and New Year, and make that a required holiday period. Employers can also restrict when staff are allowed to take leave, for example, during specifically busy times. But they can’t refuse to let workers take the leave at all!

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How Much Notice Must an Employee Give Before Taking Leave?

The government website actually states that an employee should give twice as much notice as the leave period. So, for example, if someone wants to take a day off, they should let their employer know about these two days before the leave. However, if your contract says something different, the contract is king (and gov.uk agrees).

How Much Leave Should Employees Get?

Gov.uk actually provides a helpful holiday entitlement calculator to work out how many days of holiday pay an employee is entitled to, which both employers and employees can consult to avoid any confusion.

Overtime and Holiday Pay

What is overtime? A helpful definition is “any hours worked over and above your normal contractual working hours” – in other words, more than your employee’s contract requires them to work. There are different types of overtime: guaranteed, non-guaranteed, voluntary or compulsory. And don’t forget that, by law, employees cannot usually be forced to work more than an average of 48 hours per week (unless they sign an agreement to opt out of this). If in doubt about how to calculate or enforce this, keep track of it – as with all HR documentation.

Government advice is that employers do not have to pay employees for overtime but the “average pay for the total hours worked must not fall below the National Minimum Wage”. The definition of overtime, how it must be recorded, and how, when and how much will be paid comes down to what is in your employee contract.

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What Happens to Their Holiday Allowance When Employees Have Worked Overtime?

Should holiday pay include overtime? This is a very thorny issue: so thorny, in fact, that multiple court cases have been fought over this. A few of these pertinent cases took place in 2013, 2014, 2016 and 2017. You can find a summary of these cases and their findings here but, in essence, they set the groundwork for an Employment Appeal Tribunal (EAT) ruling that holiday pay should reflect non-guaranteed overtime.

In other words, if employees are required to work overtime when their employers ask them to do so (called non-guaranteed overtime) then these overtime payments must be taken into account when their holiday pay is calculated if, as this source puts it, there’s a ‘settled pattern of work’ and or the overtime varies but ‘is regularly paid’. As PWC summarizes it in their blog headline “Employment Appeal Tribunal confirms holiday pay calculation is much wider than basic pay”.

How Should Employers Calculate Holiday Overtime?

Unfortunately the law is not yet clear on exactly how overtime and holiday entitlement should be calculated in all instances, but this response from Karen Bexley, head of employment law at MLP Law, may serve as a helpful starting point.

If an employee has a settled pattern of work and pay doesn’t vary because of commission, for example, normal remuneration is easily identified. In cases where there is no settled pattern of work or where there are variable payments – shift workers, commission-based roles, etc. – it appears most likely that the standard 12-week reference period set down by section 221 of the Employment Rights Act 1996 will apply, regardless of the business or employee.

Can Employees Be Paid in Lieu of Taking Holiday?

Regardless of how your company calculates holiday pay overtime, your employees cannot be paid in lieu of taking holiday. Not unless they’re leaving a job. If they are leaving, gov.uk says, “The only time someone can get paid in place of taking statutory leave (known as ‘payment in lieu’) is when they leave their job.” Even if the worker was fired, or ‘dismissed for gross misconduct’ they still need to be paid out for untaken statutory leave.

Can Employees Earn Leave Instead of Overtime Pay?

Essentially, whether an employee is entitled to overtime or not is down to what’s written in their contract, as is how they are reimbursed for this overtime. Some employers might offer time off instead of overtime pay – that’s up to them, and it must be put into the contract.

In Summary: Court Cases Have Ruled that Overtime and Holiday Entitlement is Complicated, But Overtime Must be Included in Holiday

Regardless what your employee’s contract says and how you document the processes and calculations for your business, the rules do seem to be fairly clear about the fact that holiday pay must reflect ‘normal’ remuneration and not be calculated on the basis of basic pay only.

One summary puts it like this: holiday pay should also “reflect both non-guaranteed and guaranteed overtime and commission, along with other payments intrinsically linked to the performance of contractual tasks or status”.

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