Warning on holiday pay ruling

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Businesses that ask their staff to work overtime are being urged to take account of the extra hours when calculating holiday pay following a landmark ruling yesterday (Nov 4).

The Employment Appeals Tribunal ruled that some people working overtime can claim for extra holiday pay. Until now only basic pay has counted when calculating holiday pay.

Peter Lamble: "Implications"
Peter Lamble: “Implications”

The ruling affects what is called non-guaranteed overtime, a form of compulsory overtime that staff are obliged to work. But there remains uncertainty if the ruling will apply to voluntary overtime as well, and whether regularly worked voluntary hours should be included in holiday pay calculations.

The tribunal also ruled that claims for extra holiday pay can be back-dated, but capped the length of time to three months.

Peter Lamble, head of employment at Coodes Solicitors, said: “This is a ground-breaking case with far-reaching implications for businesses that regularly use overtime. Not only will they have to take account of the ruling from now on when calculating holiday pay, but they are now open to potential claims for back-pay as well.

“Aside from the increased payroll implications for employers that regularly use overtime, we are urging businesses to review their policies and procedures with some urgency to ensure that they take account of the ruling, especially in the run up to the Christmas holidays.

“Even though a further appeal is likely, the ruling will stand as law for the time being and businesses that fail to comply will lay themselves open to tribunal appeals.”