• International Workplace
  • 4 November 2014

Tribunal rules holiday pay should include overtime in groundbreaking case

The Employment Appeal Tribunal has this morning provided its verdict on the case regarding whether overtime should be included in holiday pay, ruling that overtime should be taken into account when holiday pay is calculated.

Currently only basic pay counts when calculating holiday pay, but today’s ruling means that all people working voluntary overtime could now claim for additional holiday pay.

While the details of the decision, particularly on whether claims can be backdated, have yet to be publicised, the verdict has serious implications for all companies paying their staff overtime.

Government estimates suggest that one-sixth of the 30.8 million people in work get paid overtime, meaning approximately five million workers could be entitled to further holiday pay.

Commenting, CBI Director General, John Cridland, said:

"This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds - and not all will survive, which could mean significant job losses.

"This judgment must be challenged. We need the UK Government to step up its defence of the current UK law, and use its powers to limit any retrospective liability that firms may face."

Suzanne McMinn, HR Director at International Workplace, expects an appeal:

“Given the significant costs to UK businesses, there is bound to be an appeal, but this will take time and during this interim period we need some guidance on how to proceed. The EAT has given its ruling, so case law has been set, which means employers should follow it. Realistically, there may be some delay as employers wait to see if an appeal is lodged.”

Offering advice to employers who are worried following today’s ruling, Suzanne added:

“At this stage, employers should comply with the new ruling and calculate holiday pay incorporating any overtime. However, as there is no guidance on backdated holiday pay, employers are under no obligation to pay this. This may change as more detail comes out from the EAT, so keep alert for any updates.”