Ground breaking case – holiday pay includes overtime

The Employment Appeal Tribunal ruled yesterday:

1. Payments of overtime (including non-guaranteed) are part of a worker’s normal remuneration and should be included when calculating holiday pay;
2. Other payments, for example payments for time spent travelling, should be included when calculating holiday pay.
3. Depending on the contract payments in lieu of notice should include overtime.
4. A worker can make a claim for unlawful deductions retrospectively but the chain in a series of deductions will be broken if there is longer than 3 months between each deduction.

Whilst this decision could have a huge impact on employers that rely heavily on worker’s working overtime, or employer’s who pay regular commission, the following should be born in mind when dealing with worker’s requests for extra holiday pay:

1. Is the additional pay, for example overtime, part of the employee’s normal pay – is pay normally received by the worker? The payment must be made for a sufficient period of time to justify normal pay. Beware that if there is a pattern of work that is regular there will be no question over whether overtime constitutes normal pay.
2. The judgment significantly limits retrospective/backdated claims for additional holiday pay. In summary such a claim must be brought within 3 months of the last deduction i.e. last time holiday was paid only based on basic pay. It is possible for a worker to bring an unlawful deduction claim for a series of deductions. In this type of claim the case must be lodged with the tribunal within 3 months of the last deduction, no matter how long had passed in between deductions. In this judgment it was confirmed that if there is a gap of more than 3 months between 2 deductions the chain in the series of deductions is broken.
3. If an employer refuses to increase holiday pay, the worker will then be left with the option to make a claim in the employment tribunal. This could be costly and risky for an employee, particularly as there is likely to be a further appeal of this decision, meaning that by the time that the employee’s claim is heard the law could be different.

If you have a workforce that is asking about increased holiday pay based on this judgment, please get in touch to discuss your options at kate.brooks@ellisjones.co.uk.