Landmark news regarding holiday pay and overtime.
Holiday pay should include overtime. The Employment Appeals Tribunal today ruled that holiday pay calculations must include regular non-guaranteed overtime. If overtime is such that an employee can consider payment for it as part of their “normal” pay then holiday pay should be based on that payment amount.

Some ambiguity exists around how the decision is made about whether overtime is regular and what reference period should be used to calculate an average for holiday pay purposes.

The EAT has gone some way to limit backdated claims which was the fear of many employers if this ruling was made. The ruling limits backdated claims to incorrect holiday payments made within the last 3 months or where there have been a series of incorrect payments in short succession prior to that if the most recent period is within the 3 months. If there has been a 3 month gap between incorrect holiday payments that will break the chain for making backdated claims. There appears to still be some ambiguity about this aspect however so we will update you as we get more information.

It is predicted that there will be an appeal at the Court of Appeal against the ruling, however it would appear that employers should now start to pay holiday pay including those overtime calculations. Employers who regularly pay overtime should now take action & seek advice about the financial implications.

The British Chambers of Commerce, the CBI, the FSB and the British Retail Consortium are amongst business lobby groups, who,alongside the Government, are vowing to fight the decision. UK legislation has to date allowed for holiday pay to only be calculated on basic pay and these groups argue that it is punitive to businesses to now change that and to allow any kind of back dated claims on the matter.

In short – this ain’t over yet!

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