EAT Ruling – Overtime Should Count in Holiday Pay

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Workers have won the right to be paid regular overtime as part of their holiday pay following a landmark ruling at the Employment Appeal Tribunal (EAT)yesterday.  The European Working Time Directive, brought into UK law in 1998, says that workers should receive their ‘normal’ pay when they take annual leave. Whilst employers have previously interpreted ‘normal’ pay to mean basic contractual pay, the Employment Appeal Tribunal has ruled that UK companies have misinterpreted the Directive and have calculated holiday pay incorrectly by ignoring any overtime regularly worked by an employee.

The ruling now means that holiday pay must be calculated using a worker’s  normal hours – including overtime if it is part of their usual working pattern. The EAT ruled that workers could claim retrospectively for incorrectly calculated holiday pay, although employees will not be able to claim more than three months after the last incorrect payment.

The decision will have a profound effect on businesses, some of which will see a huge rise in their wage bill as a result of the decision, and whilst the decision is likely to be referred to the Court of Appeal, employers will need to make sure that they are prepared for the immediate impact of the decision, particularly if they regularly ask staff to work over and above their contracted hours.

For advice on how this decision will impact on you, whether you are an employer or employee, call David Rogers on 01282 433421 (Burnley) or Matthew Finley on 01282 864500 (Colne) or send us an on-line enquiry.