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08/11/2014 - Overtime should count in holiday pay

employmentappealtribunalGood news for workers this week. There was an important court ruling that overtime should count in holiday pay. An Employment Appeal Tribunal (EAT) ruling on the Bear Scotland vs Fulton case found that overtime pay should have been factored in to the three road maintenance employees’ holiday pay. Two other cases – Amec vs Law and Hertel vs Wood – were also included in the ruling. The employees won their original claims and the tribunal has now rejected the companies’ appeals. The cases revolve around the interpretation of the EU Working Time Directive, specifically the Working Time Regulations implemented in 1998.

Holiday pay must now reflect the worker’s actual normal earnings rather than just basic salary. If a worker’s earnings vary depending on the amount of work they do or the times that they carry out that work, their holiday pay should now be based on an average of their actual earnings calculated over a 12-week reference period.

The type of payments that need to be included in the calculation include overtime payments, shift payments (eg unsocial hours payments) and travel supplements (although reimbursement of out-of-pocket expenses would not be included). Bonuses are more complicated – the employers in this case had already conceded that a contractual bonus based on both individual conduct and group performance had to be factored in, but discretionary annual bonuses may not need to be included.

Sadly the EAT did limit this a little. The additional elements only need to be included in holiday pay for the four weeks of annual leave guaranteed under EU law, and not the additional 1.6 weeks required under UK law (or, indeed, any additional contractual holiday).

You might also be wondering if you have a claim to backdate holiday pay under this new ruling! As yet the employment appeal tribunal’s ruling on this issue will make it difficult for most workers to backdate their claims by more than a few months at most. The trade unions who backed the case have permission to appeal on this point to the Court of Appeal, though, so fingers crossed!

This latest ruling is similar to this case is that of Lock v British Gas, where the European Court of Justice (ECJ) decided that holiday pay should reflect the commission a worker would normally earn. The case was due to go to the Leicester Employment Tribunal in October, but has now been postponed to February.