As a creature of habit, part of my morning ritual is to tap into the BBC news app on my commute through central London, giving me the chance to zone out and forget about the fact that I’m in a crushed train with condensation forming on the windows, breathing in circa 40 peoples’ air supply!

Last week I came across a particular article that really caught my attention and inspired me to write this entry:  Overtime should count in holiday pay”.

Before joining Capgemini I spent some time working in a manufacturing environment that relied heavily on overtime to satisfy the labour needs associated with the production of a seasonal product. Overtime was widely viewed within the organisation to be beneficial to both employer and employee. The employer satisfied the business need by pulling in labour flexibly to fulfil demand whilst the employee had the opportunity to earn that bit extra when they needed it.

Over the last week, the revelations that have unfolded serve as a key development in employment law. What’s being proposed serves as a fundamental change to the way employers manage, and I’m fascinated to discover what the true implications will be for employers, and how these will influence the way they manage their workforce.

So what is the actual change?

The change stems from a series of rulings by the European Court of Justice (ECJ) that holiday pay must be at a similar level to the pay that workers actually receive whilst working. The rationale for this is that workers should not be discouraged from taking holidays (for health and safety reasons).

The UK employment appeal tribunal had the difficult decision to make over whether UK law, which currently states that workers with normal working hours can be paid basic salary only during annual leave, should be interpreted differently to bring it into line with these ECJ rulings. The employment appeal tribunal confirmed that it should, and that businesses should therefore factor in overtime (and certain other payments) when calculating holiday pay, as well as basic salary.

So in essence, this means that employees who work overtime (both voluntary and mandatory) will now have this considered as part of their holiday pay calculation. This represents a fundamental change in practice for employers, with an estimated 17% of the 30.8 million employees in the UK being paid overtime.

The Employment Appeal Tribunal reviewing the recent case have exercised their judgment that employees should receive back pay of what is owed to them, this should go back no further than 3 months, serving as small relief to many employers.

So how might this influence workforce management?

Although no two organisations are the same, keeping costs low will be a key priority for most. Therefore, the additional costs proposed by this change in practice will be in direct conflict with organisational priorities.

The commercially savvy employers out there are probably already thinking about the ways they can get around having to increase their spend… these may include:

  1. As opposed to offering overtime, employers might be encouraged to recruit more employees, completely eradicating the need for overtime.
  2. Offering of temporary contracts to serve periods where there is a requirement for greater output.
  3. Offering annualised and zero hour contracts, where hours worked are done at times stipulated by the employer rather than set at a fixed work pattern.
  4. Investment in more sophisticated techniques of labour planning that can forecast where extra resource is required and moving heads around appropriately.

One of the key points to consider is that at the moment, the financial outlay to employers is unknown and the direct impact these changes will have on individual businesses is hypothetical.

However, what is fact, is that as a result of overtime employees have enjoyed increased earning potential,  and employers a more flexible and adaptable pool of workers. Where costs need to be reduced, this once mutually advantageous arrangement becomes less appealing to employers.

From my time in manufacturing, I can see how demand could be managed alternatively, and envisage that many organisations across sectors who rely on influx of labour and production may be doing the same.

In sum, it is my view that employers will have their means of avoiding overtime if they see fit to… so it begs the question, who will really lose out?