How should organisations calculate holiday pay for those who work overtime?

UK law states that all workers must receive 5.6 weeks’ paid holiday each year. According to the European Court of Justice, this means that workers should receive their “normal remuneration” during periods of holiday. This is regardless of what their contractual hours are and this will still be the case post-Brexit!

So, what is “normal remuneration”?

A full-time worker who works fixed hours (eg. 9am to 5pm) and is paid £26,000 gross a year, or in other words £500 a week, will receive £500 during a week’s holiday. But what about workers who receive paid overtime, commission or other similar payments in addition to their basic pay?

Whilst there is still a degree of uncertainty because of ongoing appeals, under the current law, organisations should ensure that normal remuneration includes all overtime worked where those payments are sufficiently regular and paid over a sufficient period.

Exactly how regular overtime must be and the length of time it must be worked over in order for it to be included in the holiday pay calculation involves a bit of guess work. But you don’t need to include one-off or occasional payments when calculating holiday pay.

So, holiday pay for all workers who receive regular extra payments such as overtime or commission should be calculated as follows:

Consultation is currently on-going as to whether the 12 week reference period for calculating holiday pay should be increased to 52 weeks. And, strictly speaking, any increased holiday pay need only be paid for 4 of the 5.6 weeks. However, trying to factor in this further calculation is likely to add an unwelcome layer of complexity for organisations.

The message to organisations: to avoid unwanted litigation, budget for the full cost of hiring workers going forward and ensure that you pay the correct amount of holiday pay going forward.

If you have any questions on the above or about who is entitled to receive holiday pay, please speak to Caroline Banwell at Harmony HR Solutions Ltd.