Changes to holiday pay calculations and how your business is affected

The Employment Appeal Tribunal (EAT) made headlines recently when it ruled that certain overtime needed to be taken into account by employers when calculating holiday pay. The decision sent the business world into turmoil and legal advisers were bombarded with calls from business owners concerned about the financial implications and legal risk.

The cases involved overtime which did not have to be offered by the employer but which had to be worked by the employee when it was offered. The EAT decided that the overtime was regular enough to have to be included in the calculation of holiday pay.

Some good news for employers came in the limiting of how far back an employee could claim for underpayments of holiday pay. The EAT decided that claims could not be considered if the underpayment was more than 3 months ago and if there were a series of underpayments, a claim for earlier ones cannot be made if there is a gap of more than 3 months between them. Unite, who represent some of the workers bringing the claims, has announced its decision not to pursue an appeal in respect of this part of the decision.

The Government has set up a task force to consider the impact of the ruling and no doubt legislation will follow. In the meantime, and in view of similar court decisions regarding commissions and allowances, employers are advised to undertake a review of the terms of their employment contracts relating to remuneration and holiday together with any related policies.