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Holiday Pay and Overtime – Implications for the Health and Care Sector

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5 November 2014

The Employment Appeal Tribunal (EAT) yesterday provided a judgment on holiday pay that potentially affects the way in which holiday pay is calculated for the Health and Care Sector.  We have considered the details of the judgment and the impact this may have upon operators.

What was the EAT’s judgment in relation to?

The case relates to the value of holiday pay that employees should be entitled to and, in particular, the earnings on which holiday pay should be based.  The EAT considered whether overtime, commission and other allowances should be included in earnings forming the basis on which holiday pay was to be calculated. 

Interestingly, the remit of the review was only to consider the 20 days of holiday that was originally enshrined in the Working Time Regulations 1998.  The entitlement to paid leave for statutory bank holidays therefore appears unaffected by this decision.

What were the findings from the Tribunal?

The outcomes were almost entirely in the favour of the employees rather then employers in this judgment.  The key outcomes were:
  • The judgment considers that holiday pay should be based upon “normal remuneration”, rather than “normal hours of work”;
  • Accordingly, holiday pay should be based upon all hours worked, including overtime (regardless of whether an overtime premium is paid) and all allowances that relate to time spent by employees;
  • The judgment specifically refers to travel time allowances and the fact that these should form part of normal remuneration;
  • Finally, the judgment attempts to clarify the scope for retrospective claims. The conclusion appears to be that this is unlikely to stretch beyond a 12 week/three month period, but commentators suggest that this will vary from case to case.

What are the potential implications for Health and Social Care Operators?
As operators continue to assess the implications of multiple pressures on staff costs arising from recent cases in relation to sleep-in payments, paid travel time, National Minimum Wage increases and the increasing focus upon a “living wage”, the judgment may be seen as the last straw.  However, the sector may not be quite as seriously affected as it may first appear.  Our observations are as follows:
  • Many staff in the sector work variable hours and, therefore, holiday pay is often already calculated based on average earnings over the previous 13 week period;
  • Staff on zero hour contracts in particular should be unaffected by this ruling;
  • Operators will, however, need to consider whether existing calculations pick up allowances such as sleep-in shifts, on call allowances, travel time allowances or any other time related pay;
  • Staff employed on a part time basis will also need particular consideration to ensure that holiday pay reflects actual hours worked and paid for, rather than just contractual entitlement.

What next for Operators?

It certainly seems appropriate to review holiday pay calculations and the extent to which these currently pick up all allowances and payments that staff receive as part of their total remuneration.  The implication of the judgment is that regardless of the wording of employment contracts, the Working Time Regulations demand that all relevant earnings form the basis of holiday pay calculations.

However, as with so many judgments that potentially cause Her Majesty’s Treasury headaches, the final outcome is unclear.  In its summing up, the EAT has already granted leave to appeal all points of the judgment, which is likely to be heard by the Court of Appeal.  The Business Secretary, Vince Cable, has also announced that he will be setting up a task force to look at the impact of the judgment.

Despite this uncertainty it appears important that operators seek guidance from their employment law advisors as to whether they should amend their existing methodology, or sit tight. 

We would be happy to discuss the impact of the ruling and strategies for assessing the potential implications for your business.  For further information, please contact a member of the Health and Care Team.

Andrew Brookes - Partner and Head of Healthcare
Andrew Brookes
Partner and Head of Healthcare Contact details
Richard Dade - Associate Partner
Richard Dade
Associate Partner Contact details