In the UK, the new ruling on overtime and holiday pay from 2022 has redefined how employers calculate and pay their employees overtime and holiday pay. This new ruling guides them to pay their workers fairly and   lets employees know of their rights and raise concerns if they haven’t been paid properly for their overtime.

In this post, we will talk about all the changes under the new ruling on overtime and holiday pay in the UK from 2022:

Understanding Overtime and its Types

Overtime refers to the amount of time worked by an employee beyond their contracted work hours. Working overtime sometimes becomes necessary for employees to meet immediate demands, meet a project deadline, make up for another employee’s leave of absence, or for various other reasons.

In the UK, employees are not legally required to put in additional work hours. Likewise, employers are not legally required to offer additional hours of work for employees.

Employers are also not legally required to pay employees for any extra work hours, so long as the average pay for their total working hours does not fall below the national minimum wage.

There are also three types of overtime that both employers and employees should know of, and these are:

  • Voluntary Overtime

In this type of overtime, employers don’t have to offer any kind of additional work hour for their employees. Employees, on the other hand, don’t have to accept the overtime work offered by their employer.

  • Compulsory Overtime

It happens when employers require their employees to work additional hours, and the employees must agree to work overtime. This is generally mentioned in the employment contract.

  • Non-Guaranteed Overtime

Here, employers are not obliged to provide overtime for their employees. However, if they do, employees must accept the offer and work overtime.

Overtime for Holiday Pay Calculations - Changes

According to the new ruling on overtime and holiday pay from 2022, implemented in April 2022, employers must consider overtime work when calculating holiday pay for employees.

Until this new ruling, shift and part-time workers were given holiday pay based on their previous 12 weeks of pay. However, the new ruling stated that these workers should be given holiday pay based on their previous 52 weeks of pay.

A new body, named the Good Work Plan, was set up to ensure the enforcement of all the changes of overtime pay, holiday pay, employee rights, and more.

In cases when employees have worked for several hours without any pay, it may not be possible to calculate their holiday pay based on their previous 52 weeks of salary. In this scenario, you can track the earlier worked weeks of the employees to get their average weekly salary.
To calculate this pay, you can go back to a maximum of 104 weeks to get the average weekly salary of employees.

If the employee had been off sick during the previous 52 weeks and had been provided with the Statutory Sick Pay for that year, you can compare this payout against their average weekly pay. If the sick pay is lesser than their average weekly pay, you can compare earlier working weeks as the base to calculate their holiday pay.

As per the Employment Appeal Tribunal, all types of regular overtime work should be considered while calculating the holiday pay entitlement for employees. Currently, employees are entitled to a minimum of four weeks of leave every year.

With overtime holiday pay also being added, employees will get another 1.6 weeks of paid leave every year. So, they are now entitled to a minimum of 5.6 weeks of leave every year. These 1.6 weeks can include bank holidays, provided it is mentioned in the employment contract.

According to the new ruling on overtime and holiday pay 2022 UK, it has been mandatory that as per the Work Time Directive 1998, employers can make their employees work only up to a maximum of 48 hours per week.

If the workers are asked to come to work over and beyond these 48 hours, the terms must be specified in an agreement signed by the employees and employers. This rule has been effective since April 2022.

The new ruling has also introduced changes in the national minimum wage for different categories of employees. According to the new changes, the national living wage has increased to £9.50 per hour, while the national minimum wage has been fixed at £9.18 per hour. For workers aged between 18 and 20 years, this minimum wage is fixed at £6.83 per hour, while for workers aged between 16 and 17 years, this is fixed at £4.81 per hour.

Other Factors Affecting Holiday Pay

While the above sections talk about the regular overtime work that needs to be included for calculating holiday pay for employees, it is also worth knowing that an employee’s holiday pay is based on other factors such as:

  • Commissions as decided in the employment contract
  • Bonuses for employees that satisfy the metrics mentioned in the key performance indicators
  • Other expenses and travel allowances offered to employees as per their employment terms
  • Type of overtime work and the number of hours of overtime work done

The regular overtime work mentioned here doesn’t only refer to the number of actual hours that the employee puts in at his office, but it can also include the number of additional hours that he spends attending conference calls, training, travelling for work and other work-related time.

Regardless of the factors that are considered for holiday pay, it is a good idea for employers to mention them in a well-written employment contract, and get the employees to sign it. This way, transparency is maintained between both the parties involved.

How Can We Help?

If you need help with understanding and implementing the new ruling on overtime and holiday pay 2022, you can contact a reliable online accountant UK company such as Unicorn Accountants.

At Unicorn Accountants, we assist employers and employees with customised payroll services that will be in line with the new ruling. Contact us right away on 020 8064 0454 with your needs, and our executive will help you with all your queries regarding overtime and holiday pay calculations.