EAT holiday pay ruling: what it means for your business

The Employment Appeals Tribunal (EAT) has ruled that statutory holiday pay should include payments for overtime but only where the overtime is not voluntary, for example where it is a contractual obligation for the employee. The main issue for the EAT was whether overtime and some travel payments should be included in the calculation of holiday pay by employers.

The EAT said, “normal pay is that which is normally received” and so both contractual overtime and payments in respect of travel time constituted normal pay and should therefore be included in holiday pay.

Backdated claims

Backdated claims are only valid if there has been a gap of less than three months between successive underpayments of holiday pay. Once there is a gap of more than three months the retrospective claim cannot go back any further.

Why the case has arisen

The case has arisen due to the differing interpretations in European and English law on the meaning of holiday pay.

Likelihood of an appeal

Both employers and employees may appeal the decision of the EAT to the Court of Appeal, although the EAT’s opinion was that any appeal by the employers would not have a reasonable chance of success.

Implications for business if the EAT decision stands

If the EAT decision stands this will have significant ramifications for businesses. Businesses may need to change the way in which they calculate holiday pay; the way in which additional payments need to be included in holiday pay, for instance. Businesses will also need to examine how they structure overtime for employees in the light of the judgement. Some may abandon compulsory overtime and offer voluntary or non-regular overtime instead, as this is not covered by the EAT’s decision.

Taskforce setup over holiday pay ruling

Business Secretary Vince Cable has setup a taskforce to assess the impact of the EAT ruling.

Members affected by this decision are advised to seek independent legal advice.