Overtime should count in holiday pay, tribunal hearing rules

An employment tribunal's decision that overtime can be taken into account when calculating holiday pay could have potentially devastating effects on British firms, business organizations have argued.

That's because millions of workers could now have their holiday pay recalculated to take into account overtime and commission after the Employment Appeal Tribunal ruled that it is wrong for employers to only take into account basic pay when calculating how much an employee should be paid while they are on holiday.

The case was brought forward by a British Gas worker who pointed out that his pay was made up of 40pc basic pay and 60pc sales commission — yet he was only paid the basic pay while on holiday.

Following this, employees from road maintenance company Bear Scotland, engineering firm Amec and industrial services group Hertel appeared before the UK employment appeal tribunal, questioning their holiday entitlements. They said that holiday pay should be based on their average earnings, which were higher when overtime and commission was taken into account.

Despite providing a positive ruling for employees, the Employment Appeal Tribunal nevertheless decided that workers can only make back claims if it is less than three months since their last holiday, which was a much-needed reassurance for UK companies.

Even so, a variety of business organizations have criticized the decision, arguing that it could have a potentially devastating effect on numerous small and medium companies, especially if forced to pay retrospective compensation.

John Allan, FSB National Chairman, commented on the tribunal ruling, saying that: "Today's ruling leaves many questions unanswered. It has the potential to be very damaging to small businesses, presenting a real risk of small firms being forced to close down if faced by retrospective claims."

Time and Attendance payroll technology to automatize holiday pay calculations

The first clear and visible outcome of this ruling is that, from now on, firms should be more aware of taking into account commission and overtime when calculating holiday pay for certain workers.

However, this is likely to come at a significant costs for businesses, with manufacturers' organisation the EEF calculating that it will add more than 3pc to its members current payroll costs.

Bonuses and other staff payments are done in a very fast and easy manner due to easy-to-use Tensor Time and Attendance payroll technology.

Tensor WinTA systems handle all major hours calculation methods, absence planning and entitlement management. WinTA allows you to create a series of shift premium rules that enable employees to earn bonus payments under special circumstances. The bonus is calculated either as extra hours or monetary amounts and can be included in the export to payroll.

If you'd like to find out more about the Biometrics access control solutions supplied by Tensor, just contact our dedicated product team or Book a Demo, our representatives will be more than happy to answer any questions or queries you might have.