Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/453358
10 | 16Th - 22nd JanUarY 2015 | UTILITY WEEK Policy & Regulation Market view T he Employment Appeal Tribunal has ruled that payments for overtime employees are required to work (but which employers are not obliged to offer as a minimum) will form part of normal pay and should be included when calculating holiday pay. What does this mean for your business and what can you do proactively to protect it from negative impacts? Many contractors and business owners working in the utility sector have faced tough challenges during the recession, and are still facing them in this current recovery period. Just when many are trying to turn the corner, perhaps investing in employees and new projects, potential holiday pay claims could have a knock-on effect on growth. Holiday pay has been on the agenda in Europe since 2011 when the European Court of Justice considered what the "normal" pay that employees should receive while on holi- day should be. A British Gas worker took this further, bringing his claim to the European Court of Justice that holiday pay should include commission. This, along with several other claims, paved the way for the latest decision. The Judgment in the case, known as Bear Scotland and others v Fulton and others, could have widespread implications for all employers who pay their staff overtime. The Working Time Directive states that workers must be paid annual leave, although it does not provide guidance as to how holi- day pay should be calculated, which is le to national legislation to determine. Under the Working Time Regulations 1998, a worker is entitled to be paid dur- ing statutory annual leave at a rate of one week's pay for each week of leave calcu- lated in accordance with the Employment Rights Act 1996. The way in which payment is calculated depends on a number of factors including: • whether the employee has normal work- ing hours; • whether pay varies according to the amount of work done or the time of work. Under the Employment Rights Act, work- ers with normal working hours and whose pay does not vary with the amount of work done are entitled to their normal wage. In the past this has been interpreted as basic salary only. Normal working hours are those set out in the contract and historically exclude over- time worked on top. If workers have normal working hours, but their pay varies according to the time or pattern of work, such as shis, they are entitled to holiday pay based on their aver- age pay during those normal working hours. The average is over the previous 12 working weeks and includes any allowances such as shi premiums or similar payments, which vary in amount. The Bear decision means that workers with normal working hours (who in the past would have been paid holiday pay reflecting the basic salary only) will now be entitled to receive holiday pay including overtime, if they can be required to work it in their con- tracts and routinely do so. The good news for employers is that the payment of overtime, for the purposes of the calculation of holiday pay, will only be appli- cable to the basic four weeks leave under the Working Time Directive and not the addi- tional 1.6 weeks under the Working Time Regulations. In addition, claims for arrears of holiday pay will be out of time if there has been a break of more than three months between the underpayments. Although this will require an analysis of each employee's cir- cumstances, the floodgates have not been opened to allow claims for back payments without limit. For certain, on the day of the announce- ment, there would have been much celebra- tion at union Unite's headquarters. However, it has come as a surprise that Unite has pub- licly confirmed it will not appeal against the ruling in relation to how far back holiday pay claims can go for arrears of pay. This does not mean that it will not be challenged in the future, but it does give employers far less of a headache than some had feared. While the decision has changed how we pay holiday pay in the UK, given the finan- cial implications for employers stemming from this decision, an appeal supported by the business secretary, currently Vince Cable, is likely. As an appeal is likely to take years to con- clude, employers in the utility sector cannot afford to just wait and see what happens. Here are some issues you may want to consider: 1 Assess your historic liability. Carefully review payroll and HR records (especially for holidays) to make sure you have all the relevant information to hand. 2 Make sure you are managing overtime effectively across the entire workforce instead of relying on a small pool of employees. 3 Claims for arrears of holiday pay will be out of time if there has been a break of more than three months between the underpayments so manage holiday approval processes to limit how far back claims can go. 4 You might also wish to review workers' holiday procedures and contracts so the first four weeks of an employee's holiday are treated as taken first and include non- guaranteed overtime. As the payment of overtime for the purposes of the calcula- tion of holiday pay will be applicable only to the basic four weeks under the Work- ing Time Directive and not the additional 1.6 weeks the UK specifies, this will make a break of more than three months in underpayments more likely. 5 Make sure you have systems that enable you to separate out these components. 6 Holiday request systems could be reviewed so that requests made to take holiday aer extended periods of overtime for volunteers can be rejected to manage the risk that Bear applies to non-compul- sory overtime (if regularly worked). 7 Compulsory "no holiday" periods could be introduced to create breaks in liability. While Bear is significant and employers will have to adapt to the ruling, the risk of truly damaging claims dating back a number of years has not yet materialised. David Jenkins, partner, Watson Burton LLP Happy holidays? Changes in employment law may cause utilities to shell out big sums to staff who work overtime. David Jenkins explains the legal situation and recommends some actions to mitigate your exposure.