Landmark ruling: overtime to be included in holiday pay – November 2014

5 November, 2014
by: Cripps

On the 4 November 2014, the Employment Appeal Tribunal (EAT) ruled in Bear Scotland v Fulton (and two other cases) that overtime payments should be included in the calculation of holiday pay. Previously, only basic pay counted when calculating holiday pay. This meant that many workers who regularly worked overtime received less pay when they took holiday. 

 

The government estimates that over five million workers in the UK work overtime.  This decision is therefore going to have a significant impact on UK businesses.  Some employers are already considering reducing non-contractual overtime to counter the impact of this decision.  In view of this, the government has already announced that they are setting up a taskforce to assess the impact of the ruling.

 

The key concern for employers prior to this ruling was the potential for workers to back-date claims for underpaid holiday back to 1998 when the Working Time Regulations came into force.  This is because previous case law had established that a worker can bring a claim for a ‘series of deductions’ as long as the claim is brought within three months of the last deduction in the series. The good news for employers is that the EAT’s decision restricts the scope for workers to claim arrears of holiday pay. The EAT held that where there is a gap of more than three months between any two deductions, the ‘series’ is broken.  This means that if there has been a gap of more than three months since a worker last claimed holiday pay, the worker cannot back-date their claim.  This significantly reduces the potential cost of this decision for employers.

 

Other key points to note from the decision are:

  •  Workers will be entitled to include normal non-guaranteed overtime in their holiday pay for the basic 4 weeks’ holiday under the Working Time Directive. However, at this stage, there is no specific guidance as to how this is to be calculated.

 

  •  Overtime will not be included in holiday pay for the additional 1.6 weeks’ holiday under the Working Time Regulations.

 

Finally, it is worth noting that this decision is likely to be appealed to the Court of Appeal so this may not be the end of the story.