Holiday Pay Judgement

Employment Appeal Tribunal rules overtime should be included in holiday pay.

Following a ruling by the Employment Appeal Tribunal (EAT), which states overtime should be included in holiday pay, Noele McClelland, Head of Thorntons Employment Law Team, discusses what this judgement means for businesses.

She said: "The effect of this judgment is significant for both employees and employers but the biggest relief for employers is the decision to severely limit past claims.

"The EAT has decided to close down the possibility of past claims stretching back years by providing that if workers take periods of holiday more than three months' apart this could remove their right to make claims relating to previous holiday periods.

"It's inevitable that this decision will be appealed and so we will have to await the views of the Inner House, in Scotland, and the Court of Appeal, in England, and possibly then the Supreme Court before a final position is known, which could take as long as five years.

"But in the meantime, employers who pay their workers overtime must consider how to deal with future holiday pay and may wish to review their overtime policies.

"There are currently thousands of claims either going through early conciliation with ACAS, or ready to be raised, which were awaiting on the outcome of this decision. Businesses may want to take advantage of this judgement and seek to settle any historic claims, which will most likely only have a small value, in light of today's announcement before an appeal court takes a different view."

Details of the ruling

  • 'Normal pay' will include non-guaranteed overtime when calculating holiday pay and the UK legislation should be interpreted accordingly
  • A worker is entitled to raise a claim but must do so within three months of a deduction (i.e. the failure to pay them correctly) or within three months of the last deduction if there is a series
  • In terms of what amounts to a 'series', the EAT has decided that where the deductions are separated by more than three months then the chain is broken.

For more information on the ruling and how this might impact on your or your business please contact Noele or a member of the Employment Law team.

Categories: Employment

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