Georgina Thomas held a Q&A with Lee Stephens, Director of the Employment Law & HR team at BRIDGE, to discuss the law that affects holiday pay calculations for drivers who claim overnight allowances.
As far as hauliers and their overnight allowances are concerned, how could this issue affect our haulage clients?
In a published Employment Tribunal (ET) case back in 2018 (based on a much bigger British Airways case prior to that) the ET ruled that overnight allowances could indeed be accounted for in holiday pay calculations.
The main risk of this is where such payments are found to be not just to cover specific expenses, rather they are seen by the parties as part of the driver’s “normal pay”, in the same way as some types of overtime can be included too. In reality, these payments are often seen, by drivers, as a way of increasing their net pay – this is often accepted in the industry – and it is this sort of thing that places your organisation at risk with these types of payments.
How does the law work here?
In basic terms:
- The Working Time Regulations 1998 (WTR) make clear that workers must receive “a week’s pay……for a week’s holiday”;
- The Employment Rights Act 1996 (ERA) then makes clear that a “week’s pay” for these purposes should be calculated (in basic terms) on the workers “normal working hours” plus any guaranteed / compulsory over-time and, note, even commission or bonus payments can be included too;
- The WTR must then be interpreted in line with EU law which makes clear that “normal pay”, not just the basic contractual pay, should be included when calculating the EU Directive (Article 7) 20 days holiday leave payments – so these cases can only apply to 20 of the statutory minimum 28 days holiday pay.
What kind of things should we include in holiday pay calculations for our drivers?
We need to consider the conditions for payments to be included in the holiday pay calculations first. In basic terms, these are as follows:
- They must be established regular payments made over a period of time, so that would usually exclude one off payments; and
- They must also not be attributable to specific costs or expenses incurred - if they are, then they cannot usually be part of “normal pay”. So, you can see that where an overnight allowance is actually more than what is used specifically to cover expenses like food and washing costs, it might actually become part of that driver’s “normal pay” and therefore need to be included in holiday pay calculations!
That all then means that, depending on how you word your contract and/or operate an internal system for these payments, the following items can indeed be included as an extra business PAYE cost in your holiday pay calculations for drivers:
- Overnight allowances that are not contracted as attributable to specific costs or expenses for example where the payment exceeds what the driver might, in reality, spend;
- Additional load payments;
- Regular/compulsory overtime; and
- Some bonus payments too.
What tips do you have for haulage clients here then?
- To avoid hidden claims and costs, I would start by checking your employment contract and handbook - what are the normal hours and pay arrangements?
- I would then check the allowances:
- Paid for what?
- When paid?
- On what basis?
- I would then check the all over-time payments::
- How paid?
- When paid?
- For what?
- Are they compulsory?
- I would then look at your holiday pay calculations as follows:
- What do we, and don’t we, include?
- What reference period do we use?
- Are we excluding things that:
- Are paid regularly
- Are not attributable to specific expenses; and
- Are compulsory requirements?
If you aren’t sure, please seek our advice because we can:
- Help avoid claims;
- Re-contract terms to limit or exclude payments;
- Help you to create working polices that will reduce your risk and help you put in place systems to track that all; and
- Help you safely manage any transition to new arrangements.