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Following the Employment Appeal Tribunal (EAT) decision in the cases of Bear Scotland Limited and others -v- Fulton and others, Hertel (UK) Ltd -v- Wood and others and AMEC Group Limited -v- Law and others, the way employers should calculate holiday pay will have to be adjusted.

Until now holiday pay has been calculated by reference to basic pay only and excluding such additional payments as overtime, commission and bonuses.

As a result of these decisions holiday pay should now be calculated to reflect the employees “normal pay” which would include overtime that the employee is obliged to work even though such overtime is not guaranteed.  To include overtime in the holiday pay calculation however, the payment will have had to have been made for a sufficient period of time to justify its inclusion in the employees “normal pay”.

In addition the cases decided that certain payments for travelling time which were taxable in the hands of the employee should also be included as the fact that they were taxable meant that they could not be simple reimbursement of expenses.

The decision only relates to the first 20 days holiday under the Working Time Regulations 1998 and not the additional 8 days or any additional contractual holiday entitlement.

The decision is retrospective, meaning that employees can now bring claims for “holiday back pay”.  It is this aspect that is causing the greatest concern amongst employers and the Government who fear substantial claims going back for numbers of years.

Whilst this is possible, depending upon the circumstances of each case, the decision has limited the effect of such claims by ruling that if there is a gap of more than 3 months between each underpayment of holiday pay, the chain of underpayments will be broken and the claims can go back no further.

These decisions are being appealed.  However, the President of the EAT, who gave the decision, has indicated that he does not consider an appeal against the calculation of holiday pay is arguable whereas the 3 month cut off point to limit “holiday back pay” claims is.  It may take a considerable period of time before the appeals are concluded, but in the meantime employers who make regular overtime payments, or indeed any other regular additional payment, can expect a number of claims to be brought by their workforce.

If you require further advice on this or any other employment issue, please contact a member of our Employment Team on 01905 721600


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