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Holiday Pay - Update

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As you may remember from our June 2014 Employment Bulletin there has recently been some uncertainty with respect to whether holiday pay can comprise of basic salary alone or whether overtime and commission should also be included.

These issues have far reaching consequences as they could mean that employers will need to increase the amount of holiday pay paid to employees and may also face claims for payment of backdated holiday pay.

The Employment Appeal Tribunal (EAT) has today (4 November 2014) handed down judgment in the case of Bear Scotland v Fulton which looks at the overtime part of this issue.

The key points are:

  • Workers are entitled to be paid a sum of money to reflect normal non-guaranteed overtime as part of their annual leave payments.
  • This applies to the basic 4 weeks’ leave entitlement granted under the Working Time Directive but not the additional 1.6 weeks granted under national law.
  • Claims for arrears of holiday pay will be out of time if there has been a break of more than 3 months between successive underpayments.

The EAT gave permission to appeal to the Court of Appeal but refused to grant a reference to the Court of Justice of the European Union.

For employers this means that overtime will now need to be considered when calculating holiday pay. The saving grace for employers is likely to be that claims for arrears will be out of time if there has been a break of more than three months between underpayments.

In practice this will mean that if any employee takes a week’s holiday in January (and is underpaid in respect of that holiday) and then does not take a further period of holiday for more than three months the underpayment of holiday in January will be out of time. It should be noted however that the Judge made reference to the fact that this point was the most significant for the Court of Appeal to consider if the matter progresses to appeal.

The Government has announced that it is setting up a Taskforce to consider the impact of the ruling.