Should overtime pay be included in the calculation of holiday pay?

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Workers have today won a groundbreaking case at the Employment Appeal Tribunal to include non guaranteed overtime in the calculation of holiday pay. The case is Bear Scotland v Fulton (and conjoined cases) and the link to the case is here:-

Previously, many employers had worked on the basis that only basic pay counts when calculating holiday pay but this landmark decision changes that.

The key details of the ruling are as follows:-

  • Non guaranteed overtime should be included in the calculation of holiday pay;
  • This principle only applies to the basic 4 weeks leave imposed under the Working Time Directive and not to the additional 1.6 weeks under domestic law (regulation 13A of the Working Time Regulations 1998);
  • Claims for arrears of holiday pay will be out of time if there has been a break of more than 3 months between successive underpayments. This is subject to the normal reasonable practicability test;
  • Travel time payments which exceed expenses incurred should also be taken into account when calculating holiday pay.

This ruling could however yet be appealed. The EAT has granted permission to all parties to appeal this decision to the Court of Appeal and this therefore means a final decision could be years away.

However, in the meantime, the government will urgently review this ruling. Business Secretary Vince Cable said.

“To properly understand the financial exposure employers face, we have set up a taskforce of representatives from Government and business to discuss how we can limit the impact on business.”

“The group will convene shortly to discuss the judgment.”

The government estimates that one-sixth of the 30.8 million people in work get paid overtime. This means around five million workers could be entitled to more holiday pay.

Written by
Edward Aston
4th November 2014