Employees’ holiday pay should include their overtime pay as well as basic salary when calculating how much someone should receive when they are on holiday

The principle of including overtime payments as remuneration for the purpose of calculating holiday pay will be familiar to employers headquartered on the continent but in Britain, it has generated much news coverage.

The EAT’s decision in the joined cases of Bear Scotland Ltd and ors v Fulton and ors; Hertel (UK) Ltd v Woods and ors; Amec Group Ltd v Law and ors confirms that all elements of a worker’s normal remuneration – including payments in respect of non-guaranteed overtime – must be taken into account when calculating holiday pay under the EU Working Time Directive (No.2003/88); and that the Working Time Regulations 1998 SI 1998/1833 can be construed to achieve that result.

Fortunately for employers, the judgment significantly limits the scope for retrospective holiday pay claims under domestic law. A claim for back pay would be brought to an employment Tribunal by an employee as a claim for deduction of wages contrary to S13 Employment Rights Act 1996. The EAT held that if there is a gap of more than three months between any two deductions in the chain, the ‘series’ of deductions is broken. This aspect of the judgment significantly restricts the scope for workers to claim arrears of holiday pay. An employee will not be able to claim back pay if there has been more than a three month gap between someone receiving holiday pay where there has been this kind of shortfall. The EAT also held that the recalculation of holiday pay is limited to four weeks’ basic leave rather than the 5.6 week’s leave employees are permitted to take.

Whether someone is entitled to a back payment or not will depend on their individual circumstances. When you have an employee asking about backdated holiday pay, we can advise you on whether they qualify or not. We can also advise you as to how to calculate employees’ remuneration for the purpose of holiday pay.

The material contained in this guide is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© , November 2014

Please contact:

Emmanuelle Ries

DD +44 (0)20 7553 9938

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