Employment Eye – Alert! Calculation of holiday pay

The Employment Appeal Tribunal (EAT) has today handed down its decision in the joined cases of Fulton v Bear Scotland Limited and Wood v Hertel (UK) Limited, which concern the question of whether an employer should take a worker's voluntary overtime payments into account when calculating holiday pay, or whether holiday pay should only include basic pay.

04/11/2014

The Employment Appeal Tribunal (EAT) has today handed down its decision in the joined cases of Fulton v Bear Scotland Limited and Wood v Hertel (UK) Limited, which concern the question of whether an employer should take a worker's overtime payments into account when calculating holiday pay, or whether holiday pay should only include basic pay. We understand, from early reports, that the EAT has said that overtime payments should be included in holiday pay. We will provide further analysis and detail when the full judgment is available, but, in the meantime, all those involved in HR, finance and organisational development should be aware of the potential for increased holiday pay costs, both going forward and in respect of backdated claims.

In a similar case earlier this year, called Lock v British Gas Trading Limited and others, the Court of Justice of the European Union (CJEU) said that commission should be included in holiday pay, where it forms part of a worker's 'normal remuneration'. The Lock case is due to return to the tribunal in February 2015, to consider whether domestic legislation can be interpreted in line with the European Court's decision and, if it can, how the level of holiday pay should be calculated. Please click here for a summary.

We understand that the employment tribunals are currently staying similar holiday pay calculation claims, pending the decisions in Lock and Fulton. Employers would be well advised to review their current arrangements for holiday pay and assess their exposure to the risk of claims, especially given that the time limit for such claims re-starts every time that underpaid holiday is taken and may be backdated for many years (although the extent to which claims may be backdated has yet to be decided; it may be up to six years or back to the implementation of the Working Time Regulations in 1998).  Please do contact me or another member of the Bevan Brittan employment team if you require any further information or guidance in respect of this issue.

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