Overtime, commission and holiday pay

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Beautifil lady is surfing the internet lateWhat a mess. The law is still muddy. But here’s some argument for what managers should now do.

The EAT yesterday decided that overtime is to be included when calculating holiday pay. But the decision might be appealed. And there’s still no clarity over the period over which overtime is to be assessed for calculation purposes.

And the same is true following the ECJ decision back in June that clarified inclusion of commission payments.

These two legal decisions form case law. This case law has shed light on how previously accepted statutes are to be interpreted. Basically, UK was wrongly interpreting the requirements in that statute and firms have been paying employees incorrectly for holiday pay. The statute in question is the EU Working Time Directive from 1998 and hence, in principle, employees could claim increased holiday pay for the last 16 years. With all this lack of clarity, the Government has announced a task force.

As case law, the decisions apply immediately – adding commission from June and overtime from now on. This implies that employers should act now to minimise the chance of a retrospective claim. Given the three-month period between acting and a claim, a retrospective claim in three months time would likely be invalid.

That’s the legal position.

To which add reality…

Now here’s the management approach.

Managers crave employee commitment. Commitment allows motivation and performance to happen.

Accepting that money doesn’t motivate, commission and overtime payments in holiday pay are neither here nor there. But feelings of justice (or rather feelings of injustice) are critical.  Commitment is lost when employees feel injustice in the workplace. And not paying commission and overtime in holiday pay will cause that injustice. Employees will feel aggrieved. Such payments are now their right.

The legal position suggests that it is unlikely that employers will get away with not paying holiday pay based on commission and overtime (and maybe other elements of ‘pay’ subsequently). Payment may be able to be delayed. The exact detail may change. But payment is going to be due.

Now, every employee in the land watches the media. All will know that employers are required to pay something. So managers are in the spotlight. What are they to do?

The argument in favour of action is compelling. Employers will likely in the end be forced to pay out. And retrospective payments will likely be due from some future clarification date back to the decisions now and in June. So at least managers should, right now, make accruals for this risk.

But employers must guard against damaged commitment. Poor communications and error-filled media will allow employees to form opinions of injustice. So managers must, right now, consider making payments hereon based on what is known today.

To get… recommendation

It’s a mess. But managers can come out smelling sweet and build commitment by accepting that money is due and changing the way they calculate holiday pay from now on.

The cost of paying a marginal increase in holiday pay is likely to be far less than the cost of damaged employee commitment through inaction. And paying now may avoid liability for greater sums in the future.

TimelessTime is a management consulting form specialising in human resource management and our consultants are happy to discuss this issue further with firms as the develop their policy on pay. Call us on 01444 810454/ 0203 700 3014.

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