UK Employment Law: Holiday pay update

05 November 2014

The EAT has handed down a judgment on the question of whether the calculation of holiday pay should take into account pay for non-guaranteed overtime, in the case of Hertel v Wood, BEAR Scotland v Fulton & Baxter and Amec v Law.

We will provide a more detailed summary of the decision and its implications for businesses. In the meantime the key points to note are as follows:
  1. All overtime, including non-guaranteed, and certain other supplemental payments relevant to the case must be included in the calculation of holiday pay, together with basic pay, as holiday pay should reflect ‘normal pay’.
  2. Any underpayment separated from the next succeeding deduction by a gap of more than three months is out of time. This particular aspect is more favourable to employers than had been anticipated and may significantly limit back pay claims.
  3. The increased holiday pay applies during the 4 weeks’ paid leave required by European law. This is deemed to be taken before the additional 1.6 weeks’ leave applicable under UK Working Time Regulations and any further contractual holiday entitlement in any year. This again may assist in limiting back pay claims.

There will be further issues to be determined including how to calculate the additional payments, and whether the same principles definitively apply to commission/bonus following the Lock case. Business Secretary Vince Cable announced yesterday (4 November 2014) that he is setting up a taskforce to assess the possible impact of the decision. The taskforce will consist of a selection of government departments and business representative groups. The taskforce will provide a forum to discuss how the impact on business can be limited.

Whilst the judgment does mean greater bills for businesses and may still lead to collective claims, the finding on time limits is significant in that it will limit and in many circumstances eradicate the historic liabilities that were feared across industry.