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Umbrella contractors unlikely to be affected by holiday pay ruling

Umbrella company contractors who are employed by compliant service providers will be unaffected by the Employment Appeal Tribunal ruling that overtime should be included when calculating holiday pay.

“Genuinely compliant professional employment organisations and umbrella companies, such as Parasol, have always taken overtime into account when calculating holiday pay,” explains Juliet Byrne, legal and technical director at Parasol’s parent company Optionis.

“Today’s ruling will therefore have no impact on either us or our employees. In any case, we expect the ruling to be appealed.”

Byrne also believes that contractors working for umbrella companies that are not compliant and have not factored overtime into holiday pay are also unlikely to benefit: “For other less compliant employers, the potentially very serious implications of the decision could be mitigated in two ways.

“Firstly, the case only relates to ‘non-guaranteed overtime’, which is when the employee is contractually required to work any overtime offered, but the employer isn’t contractually required to offer any overtime at all.

“Secondly, the EAT has said once again that any claims for arrears of holiday pay will generally be out of time if there’s been a break of more than three months between holidays, and consequent payment of holiday pay.”

Byrne explains: “So, if an employee took holiday in January 2013 and then again in July 2013, September and December 2013, their claim would be limited to the period from July 2013. The break between January and July would mean that claims from January 2013 and earlier are likely to be out of time.”

Three cases underpin the tribunal’s ruling: Bear Scotland versus Fulton, Amec versus Law and Hertel versus Wood. In each case, the employees won their original claims for overtime to be included in their holiday calculations and the EAT’s ruling rejects the attempt by the worker’s employers to overturn the original decision.

Published: 05 November 2014

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