New Shock Ruling on Holiday and Overtime Pay

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A new decision has been made by an Employment Tribunal that could end up costing UK businesses millions, if not billions of pounds. The ET has ruled that any overtime that has been worked by an employee must be taken in to account when an employer calculates holiday pay.

So What Does This Mean?

Well firstly, it is based on non-guaranteed overtime and claims brought by employees against their employer will be limited. The appeals to the Employment Appeal Tribunal (EAT) which made this ruling were brought by law firm Squire Patton Boggs, who stated that the EAT reached 3 main conclusions:

  • Non-guaranteed overtime will now need to be taken in to account when employers calculate holiday entitlements. This is mainly in regards to the four week entitlement that derives from the WTD (Working Time Directive). EU law states that workers are entitled to receive “normal remuneration” for annual leave and overtime would been to be regular to amount to this normal remuneration.
  • The WTR (Working Time Regulations) which were implemented in the UK in 1998 must agree with the requirements in the WTD. The Employment Appeals Tribunal stated that it was obliged to interpret the WTR as far as possible, relating to its wording and purpose and was prepared – if necessary – to read into the WTR to achieve this.
  • Finally, there will only be a limited scope for workers or employees to claim back underpayments of their holiday pay. The EAT were able to conclude that employees were not able to claim any other underpayments for holiday as unlawfully deducted from their pay, where a time period of over 3 months had passed between deductions.

Implications for Businesses

This ruling will obviously have many implications for businesses all over the country and to know where you stand exactly it is important for you to speak to a legal professional.

James Simpson, legal partner stated that this latest ruling has posed some serious implications for some businesses, who will need to put aside large sums of money to be able to afford to pay employees for underpaid holidays.

It is now up to the EAT and other bodies to decide how far back the claims could go for employers. It is possible that some claims may go back to 1998, when the UK Working Regulations were initially introduced. The government has estimated that in total, almost a sixth of those individuals currently in employment will work overtime and may be entitled to this repayment, which amounts to around 5 million people.

For many businesses this may just be another expense that will need factoring in, however for some this may become a serious issue for the continuity of their business. We have yet to see how much of an impact this ruling will truly have.


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