The UK position

In the UK, holiday pay has been calculated based on an employee’s basic salary. However, last month the Employment Appeals Tribunal (equivalent to our Circuit Court) found that overtime should be included in holiday pay. The judgement did not directly deal with truly voluntary overtime though our UK colleagues suggest that this is fairly likely to be decided in a similar way.

The UK Tribunal’s decision has caused real concern to employers and the UK Government as it affects approximately five million workers who regularly work overtime.

Many employers were concerned that the decision would mean that employees could claim back pay to 1998 (when the Working Time Act was introduced in the UK). There is some positive news with regard to such retrospective claims as the UK Tribunal decided that claims in respect of back pay will not be possible if there has been more than three months between payments in which there has been a shortfall. The UK Tribunal held that a series ‘punctuated’ by a gap of more than three months is a series for hich the tribunals have no jurisdiction, subject of course to an extension of time being granted. Therefore for most workers claims are unlikely to go back further than the current holiday year. This will be a significant relief for employers.

However, it is currently unclear whether a civil claim could be brought for breach of statutory duty/breach of contract in which case the limitation period would allow valid claims for six years prior to the presentation of the complaint.

What does this mean for Ireland?

In Ireland, the Organisation of Working Time (Determination of Pay for Holidays) Regulations set out the method of calculating an employee’s payment for annual leave. In summary, it provides 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.

Our Regulations specifically exclude overtime. Therefore, does this mean that we can ignore the recent developments in the UK? The answer is not straightforward.

The law is clear regarding the calculation of holiday pay. However, a number of Labour Court recommendations have found that overtime is excluded from calculating annual leave pay unless it is regular and rostered.

For example, in Banagher Concrete (2004), the Labour Court recommended that 50% of overtime earnings should be included in holiday pay and that overtime earnings should be calculated over the previous 52 weeks prior to the holidays. In this case, the Labour Court found that overtime was regular throughout the year.

This recommendation echoes the reasoning in the 2012 case of British Airways plc -v- Williams 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 normal pay includes pay “intrinsically linked to performance of tasks and is included in the total remuneration” and is related to the “personal and professional status” of workers, but not “occasional or ancillary costs which facilitate working” e.g. travel expenses.

In contrast, in the 2008 case of MCM Security Ltd. -v- Power, the Labour Court confirmed that it was clear from the wording of both Regulation 3(2) and Regulation 5(1) that payment in respect of overtime is not reckonable in the calculation of pay for either annual leave or public holidays. The employee in this case was employed in the security industry and his terms and conditions were governed by an Employment Regulation Order which provided that “regular rostered overtime is to be included for the purpose of holiday pay”.

Interestingly in this case, although the Court accepted that the employee had a claim under the Industrial Relations Acts, the claim had been brought under the Organisation of Working Time Act (“OWTA”) and the Court found that the employer had not contravened the OWTA.

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, one thing is certain, this matter will be further tested and examined in 2015.