Legal Updates

Tribunal Decides Holiday Pay Should Include Overtime

Written by Martin Pratt

Huge news for all employers as the Employment Appeals Tribunal (EAT) ruled that all UK employees are entitled a sum of money to reflect normal voluntary overtime as part of their statutory annual leave payments.

For employers, the key points of the EAT’s judgment, given on Tuesday in the case of Bear Scotland v Fulton, are that:

  1. Workers are entitled to be paid their “normal remuneration” during their statutory holiday entitlement, which would include a sum representing any normal overtime payments in addition to their basic salary;
  2. Employers are only required to include such overtime payments in holiday pay during the statutory four weeks of holiday pay entitlement provided for under the EU Working Time Regulations, not the additional 1.6 weeks given under regulation UK’s domestic Working Time Regulations. Contractual or discretionary holiday granted beyond those periods can also be discounted; and
  3. An employees’ Employment Tribunal claim for arrears of holiday pay will be out of time if there has been a break of more than three months between successive alleged underpayments – unless it was not reasonably practicable for the employee to bring the claim in time.

For any employer that regularly pays overtime to its employees, but only uses an employee’s basic salary to calculate holiday pay, this decision is potentially costly. According to the BBC, the government estimates that around five million workers are paid overtime, and all could now be entitled to increased holiday pay. Unite, the union who brought two of the appeals included within the judgment, is claiming a huge victory for employees, and has stated that the decision “could lead to pay-outs worth thousands of pounds”.

Nonetheless, lawyers for the employers have been quick to point out that the EAT’s conclusions regarding time limits for bringing claim, detailed at point 3 above, may severely restrict the ability of workers to bring valuable, retrospective claims against their employer for underpaid holiday pay. Despite this, the potential impact for employers could be enormous, and Vince Cable, the business secretary, announced hours after the decision that he is setting up a new taskforce to assess the impact of the ruling and ways to “limit the impact on business”.

This will not be the last important decision regarding holiday pay in the near future. Employers should watch this space as, following the decision of the European Court of Justice in Lock v British Gas, commission is also likely to be considered “normal remuneration” for the purposes of calculating holiday pay once the final decision is handed down in February 2015.

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Martin Pratt

Gordon Dadds