Holiday backpay ruling: overtime to be included in holiday pay

Holiday backpay ruling: overtime to be included in holiday pay

Suddenly holiday pay and the world of employment law is big news. This is because a case has been decided today in the Employment Appeal Tribunal that suggests that overtime worked should be taken into account when an employer calculates holiday pay. As is being widely reported, this case has potentially huge implications.

The right to paid holiday comes from the Working Time Regulations 1998.  It’s important to understand that this was the UK Government implementing European legislation – the Working Time Directive.

Since that time there have been a variety of cases on all sorts of points to clarify what the Working Time Regulations say and, more often, what they should say if they are to properly implement the original European Directive.

One of those issues has been regarding whether the paid holiday you get should be at basic rate, as many contracts state it should be, or at a rate which reflects the actual normal weekly wage earned.  This includes situations where somebody has a basic number of hours in their working week but routinely works overtime.

In simple terms, should the pay they get for the weeks they go on holiday be at the basic rate or at the actual, real-life rate? Put another way, should overtime be counted towards the holiday pay?

The case that has been decided today in Bear Scotland -v- Fulton says that the answer quite simply is yes.

Bear Scotland -v- Fulton

This ruling comes as no surprise really bearing in mind other recent cases that said commission and bonuses should also be included in a holiday pay calculation.

This case will undoubtedly be appealed and permission was given by the EAT today for there to be an appeal to the Court of Appeal.  That will happen in due course, as will an appeal to the Supreme Court and probably Europe.

But all of this is probably really just delaying the inevitable for employers, and the real question for any employer who has been paying basic rate holiday pay to employees who work regular overtime is… how bad can this get?

What this ruling means for employers

On the face of it, claims could be brought to go all the way back to 1998. Specifically 1st October 1998, when the Working Time Regulations came into force.

The Government has hinted in other cases, however, that they would somehow stop claims going back more than six years.  That might be some consolation for employers, as would the suggestion made by the EAT this morning that claims will be out of time if there had been a break of more than three months between successive ‘underpayments’.

In a separate development Vince Cable has already announced he is setting up a taskforce to assess the impact of this decision.  That will inevitably be with a view to softening the blow for employers.

So what does an employer do today?

Well, first of all, don’t panic.

The media will be full of doom and gloom scenarios, but there are the appeals, and the taskforce. And after all that how many people genuinely do you have on the books who have been working regular overtime?

You then might work out how many of those have left and whether you need to change your policy moving forward.

Because this case is almost certainly going to be appealed, there is no need to get the cheque book out today. But you can put a rough figure on your exposure and then think about how you move forward to minimise the problem.

Then go on holiday…

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