Holiday pay - Case law

With recent case law stating that employees holiday pay should reflect their ‘overtime hours’ there is a need for employers to assess the way in which they meet demands.

 

The only real reason for overtime is so that extra ordinary demands on the business can be met, therefore, if employees are working regular overtime hours, there may be a need to review the future staffing structure, whether on a temporary or permanent basis. In fact, employers could save money on wages by introducing changes to working hours, i.e. shift patterns, or simply rewarding extra hours in a different way rather than providing overtime pay.

 

What the case law says

A recent decision made by a Judge in the case of ‘Neal v Freightliner’ (2013) to grant a claim for unlawful deductions from wages suggests that the UK is moving closer to being in line with European working time laws that states holiday pay should be calculated with reference to both basic pay and any other pay “intrinsically linked” to the work, such as overtime.

With the tribunal being upheld, there is now a need for employers to seriously consider calculating employee holiday pay in accordance with an average of their remunerations in the twelve weeks leading up to any holiday time taken.

The decision was based on the fact that overall, employers are in control as to how much overtime their employees work, whether voluntary or not, ultimately disregarding any belief that employees would be able to take advantage of the situation.

What about commission and bonus payments?
A recent decision by The European Court of Justice has also turned holiday pay on its head by stating that employers must also include commission when calculating holiday pay.  This stems from a case against British Gas where an employee claimed he could not take all of his holiday entitlement because this would leave him financially disadvantaged.  Commission in this case made up to 60% of his annual salary.  Currently this case has been returned to the Employment Tribunal, for them to decide how this calculation should be made.

How will this affect employers?
These cases highlight the need for employers to ensure their employee documents are sufficiently up-to-date, and reflect the real needs of the business. Employers should take the necessary steps to make sure they have full control over employee overtime arrangements, thus protecting themselves against the possibility of employees taking advantage or manipulating the situation to gain a higher level of holiday pay.

As well as reviewing documents, employers may want to look into other ways of rewarding the hours worked by employees and finding the way that works best for them and their work demands. This could possibly include the introduction of incentives, bonuses or even time back in lieu of hours worked in excess of their normal working week. Employers may even decide to set a pay rate for holiday in advance for certain roles where this may fluctuate throughout the year. However, employers must bear in mind that any fundamental changes to terms and conditions of employment cannot be unilaterally enforced, and must be introduced via a meaningful consultation process.

Flexible Working

Working patterns have been subject to constant change over previous years, as businesses are forced to adapt their way of working to fit in with ever changing demands from clients and other parties. One such imminent change is with the rules for applying to work flexibly.

Flexible working is when an employer grants an employee the right to change their hours of work. The nature of flexible working given to an employee may vary considerably including: part-time working, flexi-time, job-sharing, term-time working, staggered hours, compressed working hours, annual hours, shift-working or even working from home.

Up to 30^th June 2014 an employee will only be able to apply to work flexibly if they have a child under the age of 17 (18 if disabled) or if they are the registered carer for a child or adult. However, from 30^th June 2014, all employees will have the right to apply for flexible working, regardless of their caring responsibilities. The changes are outlined in below.

Up to 30^th June 2014

• An employee may apply for flexible working as long and they have a child under the age of 17 (18 if disabled) or are the registered carer of a child or adult, and providing they have 26 weeks continuous employment with the company.
• Following receipt of a flexible working application, the company has 28 days in which to hold a meeting with the employee
• The employee must be notified of the decision, in writing, with 14 days of the meeting.
• The employee has 14 days in which to appeal the decision made.
• A request for flexible working may be denied if the reason for refusal falls within one of the ‘accepted reasons’.

From 30^th June 2014

• All employees will have the right to apply for flexible working, regardless whether they have caring responsibilities, providing they have 26 weeks continuous employment with the company.
• The employee has to be notified of the decision within 28 days of the meeting.
• The employer has a legal obligation to provide a valid reason for rejecting any request.
• The employee does not have the right to appeal the decision made. However, it is best practice to allow at least 5 days in which to appeal in writing.

Benefits to the business

• Whilst it may be thought the immediate benefits to the business for granting flexible working may be very limited, there are in fact a range of such benefits including:
• Employees feel more respected/valued
• A lower staff turnover
• Employees may be more inclined to work harder as a result of feeling more appreciated by the company and possibly less stressed as a result of the changes in their work pattern

Predicted implications for businesses

Given that the UK economy is strengthening and people are strongly being encouraged to setup their own businesses, employees may well want to request flexible working hours in the form of reduced hours in order to enable them to work on a new business. This raises a number of issues for employers in terms of confidentiality, restrictive covenant and intellectual property. Hence, there may be the need for companies to review employee contracts in order to protect intellectual property, and the business they have with their clients.

A second scenario may be that as a result of potential increased applications for flexible working, more tribunals may occur, especially if employees do not have an opportunity to appeal a decision.  It is therefore in the best interest of the employer to try and resolve disputes or disagreements internally, rather than allowing a situation to escalate to tribunal level. It is worth noting; an employee does not have to leave their employment in order to raise a tribunal case.

Overall, to reduce the impact these changes may have upon their business, employers should be encouraged to review and amend their policies and contracts in line with the change in legislation.