Few will have missed the press following the EAT’s decision in the joined cases known as Fulton v Bear Scotland which, among other points, decided that certain overtime payments should be taken into account when calculating holiday pay.

In summary, the critical point decided was that where overtime is compulsory, overtime pay must be taken into account when calculating holiday pay.

There is an outstanding issue in relation to voluntary overtime i.e. where an employee can choose whether or not to accept an employer’s offer of overtime. The risk for employers is that Employment Tribunals may decide that such overtime pay should be taken into account on the basis that it forms part of ‘normal pay’.

Our detailed comments about the case can be found in our recent technical update.

Business Secretary, Vince Cable, established a Taskforce to consider the impact on UK business. One outcome of that has been new Regulations, which came into force on 8th January 2015, introducing a back stop of two years for claims of unpaid holiday pay that are issued after 1st July 2015.

The Regulations introduce a significant change to the legislation on unlawful deductions as claims for most other unpaid amounts will also be limited to two years.

The Employment Tribunals have also responded with Practice Directions enabling those who have already made claims for unpaid holiday to amend their claims to take account of the EAT’s decision.

Although the parties in Fulton v Bear Scotland have decided not to appeal the EAT’s decision to the Court of Appeal, the remaining uncertainties will inevitably lead to further litigation in this area.

At this stage, we recommend that a useful exercise for employers is to begin an analysis of contractual provisions and business practices relating to overtime and also to analyse how overtime is used in specific business areas.

This is with a view to establishing the purpose of overtime, patterns of overtime and what is ‘normal pay’ for specific groups or individual employees. In some cases, it may be prudent to make provision in an employer’s accounts in relation to potential liabilities and also to review models for future costs.

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