Contractor Holiday Pay

Contractor Pay – Holiday Pay Update

6 November 2014

Reaction continues to dominate the news in relation to the tribunal cases (Road maintenance company Bear Scotland v Fulton, engineering firm Amec v Law and industrial services group Hertel v Wood) that ruled that workers who regularly perform overtime should have these earnings reflected in their holiday pay as this is their “normal pay”.

The key point could be that this ruling only relates to people who as part of their normal week regularly do overtime?

It is fair to say that the majority of us who do overtime, have in the past, treated it as a one off bonus (especially if it is paid at a higher than normal rate). Very few people actually expected to also get overtime when they were on holiday? However where your average week is made up a large proportion of overtime each and every week then this is very different. If you were contracted for 20 hours per week but actually did 50 hours every week then of course it seems fair that your holiday pay should be for your normal 50 hours. To do otherwise could mean that employers put all their staff on a 1 hour week with the remainder of their time being classed as overtime just as a way of avoiding holiday pay? Or as most Finance Directors would argue should all holiday pay be restricted to a standard week of 35 or 37.5 hours?

It could therefore still be up in the air whether this ruling applies to all overtime or just regular overtime.

The case is also confused by the fact that European Law states workers are entitled to 20 days holiday while in the UK we get 28 days. This could potentially be used to mitigate any claim.

Some reports claim backdated claims can only be made for holidays in the last 3 months while others cite that the legislation is 16 years old so could be backdated this far.

Most reports suggest claims against ex-employers are unlikely.

As our review yesterday found the effect on contractors is that they have to be treated fairly and comparably to permanent staff. So whatever a company pays to a permanent employee should also apply to a contractor on a temporary contract. Normally this means their wage rate has to be at least 12.07% higher than an employee to reflect that they don’t get paid holidays but rather get a payment in lieu of holiday pay. This is dictated by The Agency Workers Regulations or AWR.

At Umbrella we can help recruitment agencies who supply temporary labour and who are worried and looking for advice regarding these holiday pay implications.

If you are a recruitment consultant wanting to discuss further please call our Business Development Team on 0800 121 6513.