The Employment Appeal Tribunal rules that overtime should be included in holiday pay

The Employment Appeal Tribunal rules that overtime should be included in holiday pay.

A key judgment has been made by the Employment Appeal Tribunal and this may mean that the rules employers and workers follow to calculate holiday pay may need to be updated.

On 04/11/2014 the Employment Appeal Tribunal handed down its judgment regarding the case of Bear Scotland Ltd v Fulton (and other joined cases). Before this ruling, voluntary overtime was not typically included when calculating a worker's rate of holiday pay. However the Employment Appeal Tribunal ruled that it was wrong for employers to only take into account basic pay when calculating how much a worker should be paid while they are on holiday. In addition the judgement significantly limits the scope for retrospective holiday pay claims.

The judgment has clarified that:

1. Holiday pay should be equivalent to a worker’s “normal pay”. What is “normal” depends on whether the payment in question has been made for a sufficient period of time to justify the label of being “normal” (the regularity/ pattern of payments will be relevant).

2. Workers should have guaranteed and non- guaranteed overtime taken into account when they are being paid annual leave.

3. Anybody making a claim must have had an underpayment for holiday pay that has taken place within three months of lodging an employment tribunal claim.

4. If a claim involves a series of underpayments, any claims for the earlier underpayments will be out of time if there has been a break of more than three months between such underpayments as this has the effect of breaking the series.

5. Travel time payments, which exceed expenses incurred and so amount to additional taxable remuneration, should also be reflected when calculating holiday pay.

However, the judgment only applies to 4 weeks of a worker's annual leave - this is the basic amount of leave required under the EU Working Time Directive. It does not apply to the further 1.6 weeks of additional annual leave required under the UK Working Time Regulations, or to any further contractually enhanced annual leave allowances. As such, workers can expect to receive a higher rate of holiday pay (that which includes overtime, commission and various other payments) for 20 out of their 28 days’ holiday per year, with the remaining 8 days being paid at the level it previously was, unless their employer decides to pay all 28 days at a higher level.

It is important for any employer or worker who believes they may in some way be affected by this judgment to keep in mind that the Employment Appeal Tribunal has given permission for this judgment to be appealed to the Court of Appeal (stating that ground 3 was the most significant point for the Court of Appeal to consider as it was a matter of great public importance). This means that any final decision is likely to be some time away (at the time of writing, an appeal has not yet been lodged, but is expected to be).

Therefore at this stage it may be premature for employers to overhaul their holiday pay arrangements or enter into negotiations about back dated compensation for employees.

We will continue monitoring this situation and we provide updated articles accordingly. If you do have any questions please do not hesitate to contact our HR/Employment specialist Claire Berry on or 01480 442040.

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