Overtime should count in calculating holiday pay

Posted in Employment

Latest blog from our Employment department.

The Employment Appeal Tribunal (EAT) has ruled that overtime pay should be taken into account when calculating holiday pay.

Previous interpretation of the Working Time legislation suggested that it was lawful for employers to calculate holiday pay by reference to basic pay only.  The EAT’s decision means that workers paid for overtime (including overtime that is not guaranteed) may be entitled to additional holiday pay.

This ruling has potential widespread implications for all companies paying overtime to their staff.  The effect of the EAT’s decision is that the current legal position requires employers to take into account overtime pay in their holiday pay calculations.  The EAT has however given leave for its decision to be appealed to the Court of Appeal.

Of further concern to employers will be the potential for claims for backdated holiday pay following the EAT’s ruling.  It had previously been understood that workers could make claims for a series of underpayments of (or miscalculated) holiday pay stretching back for a number of years.  Surprisingly, the EAT has held that claims for backdated holiday pay arising from a series of underpayments can only be raised in relation to a series of underpayments not broken by more than a period of 3 months.  This part of the EAT’s decision is controversial and is likely to be the key ground in any appeal.  If this part of the EAT’s decision is overruled, the impact on business could be very significant.

Accordingly, Business Secretary Vince Cable has announced that he is urgently setting up a taskforce to assess the impact of the EAT’s decision on UK business and how to limit it.  We will update our clients as we learn more.

For further details of the EAT’s decision please click here to read more.

If you would like to discuss any of the issues raised in this blog further, please do not hesitate to contact a member of our Employment  department.

Myerson Solicitors LLP are premier employment solicitors in Cheshire and Manchester. Our expert solicitors advise on all aspects of employment law, including tribunal claims, TUPE transfers, contracts of employment and settlement agreements. We also provide extensive support to HR departments and professionals on the full range of employment matters.


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