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The Employment Appeal Tribunal (EAT) today (4 November) handed down an important decision, which could give rise to thousands of claims for holiday pay being brought against employers.

The EAT decided that holiday pay should take account of non-guaranteed overtime payments as part of entitlement to annual leave. Holiday pay should also include taxable payments, such as travel time that exceed expenses incurred.

The judgment may lead to employees claiming back pay for holiday pay.

However, the new ruling limits the right to more pay to workers’ four- week entitlement to leave, not the additional 1.6 weeks’ leave entitlement. A different definition will apply to a “week’s pay” for the additional leave entitlement. Note that guaranteed overtime would have to be taken into account for a worker’s full 5.6 week entitlement to leave under the Working Time Regulations 1998.

The EAT has also held that claims for arrears of holiday will be out of time if there has been more than a three-month gap between underpayments (i.e. between payments for holiday taken). This would likely mean that many claims for back pay will be limited to the four-week holiday entitlement in the particular leave year the claim is brought.

The case may be appealed to the Court of Appeal to consider when a claim for back pay would be out of time.

Points on holiday pay for employers

This decision follows the case of Lock v British Gas , where it was held that commission payments should be taken into account when calculating holiday pay. The principle is that workers on holiday receive the pay they would have received had they not taken time off of “at least his normal or average remuneration.” While this accords with the European Working Time Directive, it remains to be seen the effect of this potential increased burden on British businesses.

What is certain is that employers should now base holiday pay calculations – at least for a worker’s entitlement to the first four weeks’ leave each year – on previous earnings, including overtime.

For more information on this case or to discuss how your business could deal with the effects of this judgment, contact By David Leslie in the Leeds Employment Law team by emailing [email protected] or calling 0113 368 7804.