Employers will have to review their overtime provision after a landmark ruling by the Employment Appeal Tribunal (EAT) that overtime should be included in holiday pay.
The decision effectively changes the law so that organisations will now have to include regular non-guaranteed overtime payments when calculating holiday pay. Currently, only a worker’s basic pay counts towards this calculation.
The EAT ruling centered on the case of Bear Scotland v Fulton, where employees claimed that their voluntary overtime pay should have been included in their holiday pay.
Two further cases, Amec v Law and Hertel v Wood, were also considered in the ruling.
According to government estimates, around one-sixth of the 30.8 million people in work receive some form of overtime. This means that around five million workers could be entitled to more holiday pay.
However, fears that a decision to include overtime in holiday pay would lead to billions of pounds of backdated claims were largely alleviated, as the EAT ruled that claimants should not be able to link together historic holiday periods to make a claim for an ongoing series of deductions.
Andrew Stones, a partner at Squire Patton Boggs, who led the appeals on behalf of two of the employers in this case, said: “The EAT has really limited the scope for different holiday pay periods to be linked together as one ongoing series of deductions for historic claims. This finding will significantly limit the scope for such claims in the future and the flowing potential liability for companies.”
There had been concern that workers could lodge claims dating as far back as 1998, when the Working Time Regulations came into force.
“Due to the costs involved, many employers may now look to reduce the availability of overtime, where feasible.”
