Overtime should count in holiday pay

04 November 2014


The Employment Appeal Tribunal has decided that people working non-guaranteed overtime can claim for additional holiday pay. Currently, only basic pay counts when calculating holiday pay.

We are grateful to Daniel Barnett’s analysis of the detailed judgment which homes in on five key decisions:

1. Workers are entitled to be paid a sum of money to reflect normal non-guaranteed overtime as part of their annual leave payments

2. That applies only to the basic 4 weeks' leave granted under the Working Time Directive, not the additional 1.6 weeks under regulation 13A of the Working Time Regulations

3. Claims for arrears of holiday pay will be out of time if there has been a break of more than three months between successive underpayments (subject to the reasonable practicability test)

4. Travel time payments, which exceed expenses incurred and so amount to additional taxable remuneration, should also be reflected when calculating holiday pay.

5. The Employment Appeal Tribunal refused to grant a reference to the Court of Justice of the European Union, but gave permission to appeal to the Court of Appeal (stating that ground 3 was the most significant point for the Court of Appeal to consider).

BBC News reports that Andrew Stones, the lawyer who led the appeals on behalf of two of the employers in the holiday pay case says: "Concerns [of the business community] should largely be alleviated following the judgment... [the tribunal] has really limited the scope for different holiday pay periods to be linked together as one ongoing series of deductions for historic claims. This finding will significantly limit the scope for such claims in the future and the flowing potential liability for companies."

The ruling could be appealed to the Court of Appeal, meaning a final decision may be years away.

The ruling has widespread implications for all companies paying overtime to their staff, as Mike Nicholas makes clear in his article starting on page 20.