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Ground breaking ruling on Holiday Pay

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The Employment Appeal Tribunal (EAT) have reached a decision on the controversial topic of whether overtime should have been included into employees holiday pay.  The EAT have considered the cases of Bear Scotland v Fulton and Baxter, Hertel (UK) Ltd v Wood and others and Amec Group Ltd v Law and others.

All full time workers are entitled to 28 days a year paid holiday and this can include bank holidays.  Part time employees are entitled to this on a pro-rata basis.  Historically, only basic pay counts when calculating holiday pay.  However, the Employment Appeal Tribunal’s decision will now mean some employees working overtime may claim for additional holiday pay.  Even more controversial is the fact the EAT also ruled that workers can make backdated claims.  This has been limited to employees cannot claim more than three months after the last incorrect payment.  This should result in the vast majority of cases being limited to the current holiday year.

Although the EAT provided clarity on backdated claims, it was not clear as to whether the decision applied to employees completing overtime on a voluntary basis.

The coalition government argued against this decision that overtime should not be included in holiday pay calculations, as the concern is the impact this decision will have on businesses.  This decision could cost businesses a considerable amount of money and not all businesses will be in a position to withstand this loss.

From an employee perspective this is a groundbreaking decision which will ensure employees are compensated for overtime in their holiday pay.  The EAT’s decision is in respect of the minimum 28 day holiday required by EU Law and not the additional 1.6 weeks provided by UK regulations.

In the interim period employers will need to determine what sums need to be included in the calculation of holiday pay when employees undertake overtime.  Also employers will need to consider how best to minimise any damage by backdated claims.  In the longer term employers will need to closely consider how they address their holiday pay arrangements.

Due to the impact on employers it is very likely this decision will be appealed and a final decision on this topic may be years away.

If you have any queries please contact our Employment team at BakerLaw LLP on 01252 733770.  We will be happy to provide initial free, no obligation advice. 


This information is for guidance only and should not be regarded as a substitute for taking full legal advice.