Counting the cost of the overtime pay ruling

I’m Peter Webster, chief executive of Corps Security, and this is where I examine the issues affecting the security industry. My thoughts and opinions are intended to generate debate and whether you agree or disagree with them, you’re welcome to post your comments below.

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As an employer, the recent ruling on overtime pay by the Employment Appeal Tribunal (EAT) has been of significant interest and I’ve been pondering the ramifications of this landmark case. Companies will now have to include not only basic salaries but also overtime when calculating holiday pay, however, the implications of this judgement go much further.

The decision was made using two test cases, one of which was brought about by 16 members of the Unite union against Amec and Hertel on behalf of a mix of electricians, scaffolders and semi-skilled operatives, who all worked on a project at the West Burton power station site in Nottinghamshire, until it came to an end in 2012. They claimed that it was unfair that as overtime was stipulated in their contracts, they were not paid for those extra hours when it came to statutory holiday pay.

The EAT said that any payment that is ‘intrinsically linked’ to the performance of a worker’s duties should be included in holiday pay. The government estimates that one-sixth of the 30.8 million people in work get paid overtime, meaning that five million workers could be affected.

I have been fascinated by some of the rhetoric that has since been used, with some employers warning of bankruptcies and job losses. Simon Walker, director general of the Institute of Directors went as far as to describe it as a ‘holiday pay time-bomb’ that would have a hugely detrimental impact on businesses. Certainly, employers which haven’t been including overtime are likely to face claims from workers, and claims handling firms are already gearing up for significant amounts of activity.

The first point that I would like to make concerns the fact that while the UK has an opt-out on European employment regulation, it hasn’t got one on health and safety, which means that as this ruling forms part of the European Working Time Directive, we have no option but to comply. This is another example of European health and safety legislation being used as back-door employment legislation and the lines between the two subjects seem to become more blurred with each piece of case law.

While this is a cause for concern, I am broadly in favour of the ruling and agree with Caspar Glyn, a barrister specialising in employment law, who said, ‘Normal pay is normal pay and that should be paid when you’re on holiday.’

There’s no doubt in my mind that the intention in the ruling is fair and designed to protect those who are being exploited by employers who deliberately pay very low wages – often national minimum wage – but offer high levels of commission in order to reduce their holiday pay costs. The ruling won’t, on the whole, have a negative impact on what I consider to be reasonable employers, who already base holiday pay on average pay. I also believe in walking it like I talk it and in 99 per cent of cases Corps Security uses an employee’s average pay over the previous 12 weeks to work out what he or she should receive while on holiday.

Regular readers of my blogs will know my opinions about zero hours contracts and while they have received a high degree of bad press, they continue to be used. I won’t revisit the arguments for and against them again, but for those on this kind of employment contract, the only real way to calculate a fair holiday pay amount is to take average earnings. Therefore those on zero hours contracts should have always benefited from the holiday pay calculation that this ETA’s ruling ensures for those on fixed hour contracts.

Things are never quite as straightforward as they first appear though and the ruling could mean that other bonuses and allowances must also be included, which is an area where I remain much more circumspect. To illustrate my point, let’s use then example of a city banker who receives a £300,000 annual bonus – given that their holiday equates to 10.7 per cent of their working year, is it reasonable that they should get an extra £32,100? I don’t think so.

The EAT’s decision is not the end of the story though, as the government is likely to contest it at the Court of Appeal and until that happens – possibly many years from now – employers face more uncertainty. My own view is that the decision should not be appealed and the government ought to simply amend the existing regulations to ensure that those doing overtime have this recognised in their holiday pay. At the same time, to avoid any possibility of spurious claims being made that abuse the regulation, any amendments should stipulate that bonuses over a certain amount are excluded.

As is usually the case when it comes to these types of complex legal decisions, there are perhaps more questions than answers. Ultimately, I think that the ruling should be considered a good thing although, as is so often the case, the devil really is in the detail.

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