A landmark judgment from the Employment Appeal Tribunal (EAT) to include overtime in holiday pay with potentially costly implications for UK businesses has been announced.
The decision – which could affect up to 5 million workers according to government figures – confirms that elements of remuneration such as overtime and commission must be included in the calculation of holiday pay.
This was a judgment that was handed down on 4th November 2014 which concerned the calculation of holiday pay in three cases: Bear Scotland v Fulton and Baxter, Hertel (UK) Ltd v Wood and others and Amec Group Ltd v Law and others.
This case has been closely monitored by businesses, trade unions and the government with all involved anticipating claims of hundreds of millions of pounds in back pay for the past 16 years.
However the details of the ruling, particularly on whether claims can be backdated, have yet to be released.
Employer groups have suggested that UK businesses could stand to lose billions of pounds in higher wage bills, and companies could react by holding back pay rises.
Diane Nicol, partner and head of employment law at Pinsent Masons, advised businesses to assess their payroll and HR records to examine the possible exposure to claims and review their current policies to align with today’s ruling. Although the impact for employers is significantly less devastating than initially feared as the judgment "significantly limits the potential for back pay liability for employers,” she said.
“Any claims in respect of underpaid holiday pay in the past are only possible to the extent that no more than three months elapsed between any such underpayments - in practice this is likely to mean that employees can only claim in respect of one year’s leave rather than, as had been a possibility, in respect of all underpaid leave as far back as 1998.”