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Holiday Pay must include overtime

4 November 2014: Does holiday pay include overtime?

When calculating the statutory right to paid holiday, most employers make the calculation based on basic pay only, and not overtime.  Should they?

 

The Employment Appeal Tribunal has just issued its answer in Bear Scotland v Fulton (and others), stating that  statutory holiday pay should be calculated on both basic pay and overtime pay; in other words a worker’s average pay, rather than just basic pay.

 

Just to complicate the calculation; that applies only to the basic 4 weeks’ leave under the Working Time Directive, but not the additional 1.6 weeks under 13A Working Time Regulations. (Employees used to be entitled to 4 weeks’ pay under the WTR, but it is now  5.6 weeks paid holiday pa, which equates to 28 days for a full timer).

 

It appears that employers would have to calculate average pay over the 12 weeks before the holiday is taken, then a) if it was part of the first four weeks of holiday, calculate the daily rate based on average pay but b) if it relates to the last 1.6 weeks of holiday entitlement it could just be calculated on basic pay).

 

The press has reported that the EAT decision might trigger claims for arrears of holiday pay worth millions. However the EAT has held that claims for historic holiday pay will normally be out of time if there has been a break of more than three months between successive underpayments.

 

In other words, if the employee has always taken at least one days’ holiday without there being a gap of more than three months over a series of years, s/he may be in time to claim the full arrears. If there were breaks of more than three months, s/he won’t be able to claim the historical holiday pay.

 

In addition travel time payments, which exceed expenses incurred and so amount to additional taxable remuneration, should also be reflected when calculating holiday pay.

 

Leave to appeal to the Court of Appeal has been granted, so this may not be the end of the story. The case also follows on from Locke v British Gas which held that holiday pay should include commission.

 

Many employers will be left scratching their heads about how to calculate paid holiday in the future and many employees wondering whether it is worth putting in back-dated claims.

 

We are employment law solicitors advising on matters including the Working Time Regulations and holiday pay. We are based in Central London (Holborn) WC1. Call us to day on 0207 118 0950 or visit us at www.reculversolicitors.co.uk

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