Holiday Pay and Overtime in Ireland

A recent UK Employment Appeals Tribunal (EAT) judgment decided that overtime should be included in the calculation of holiday pay.

Many employers were concerned that the decision would mean that employees could claim considerable amounts of back pay. However, the EAT ruling (read Eversheds’ briefing here) limited the potential extent of these historic claims in two ways. First, it held that the right to enhanced holiday pay was limited to the first 20 days' holiday in each holiday year, so shortfalls could only have arisen for these days. Second, it held that a gap of more than three months between payments for these 20 days would break the series of deductions, preventing a worker from recovering shortfalls in pay for holidays taken prior to that gap.

However, it is currently unclear whether a civil claim could be brought in this regard in which case the limitation period would be significantly longer (six years).

How does this affect Ireland?

In Ireland, the Organisation of Working Time (Determination of Pay for Holidays) Regulations (the “Regulations”) set out the method of calculating an employee’s payment for annual leave. In summary, the Regulations provide that where the weekly rate does not vary, the normal weekly rate of pay (including any regular bonus or allowance the amount of which does not vary but excluding any pay for overtime) is due to the employee.

Despite this express provision, it does not necessarily mean that the developments in the UK can be ignored.

The law in Ireland is clear regarding the calculation of holiday pay. However, a number of Labour Court recommendations, including Banagher Concrete (2004), have found that overtime can be included in the calculation of holiday pay if it is regular and rostered.

Such recommendations echo the reasoning in the cases of British Airways plc v Williams and Z.J.R Lock v British Gas Trading Limited where the Court of Justice of the European Union (the “CJEU”) determined that paid annual leave means that employees must receive their normal remuneration. The CJEU ruled that this includes pay that is “intrinsically linked to performance of tasks and is included in the total remuneration” and related to workers’ “personal and professional status”, but not “occasional or ancillary costs which facilitate working” e.g. travel expenses.

In contrast, in the case of MCM Security Ltd. v Power, the Labour Court in Ireland confirmed that it was clear from the Regulations that payment in respect of overtime is not reckonable in the calculation of pay for either annual leave or public holidays. Although the Court accepted that the employee potentially had a contractual claim, it found that the employee had no claim under the Organisation of Working Time Act.

For now, the conservative course of action for Irish employers is to follow the reasoning from the CJEU. Therefore, if overtime is regular and rostered and forms part of the employee’s normal remuneration then it should be included in holiday pay. However, this matter is likely to be further examined in 2015.