This morning, the Employment Appeal Tribunal (EAT) ruled in Bear Scotland v Fulton (and two other
cases) that overtime payments should be included in the calculation of holiday
pay. Previously, only basic pay counted when calculating holiday pay. This meant that many workers who regularly
worked overtime received less pay when they took holiday.
The government estimates that over five million workers in
the UK work overtime. This decision is
therefore going to have a significant impact on UK businesses. Some employers are already considering
reducing non-contractual overtime to counter the impact of this decision. In view of this, the government has already
announced that they are setting up a taskforce to assess the impact of the
The key concern for employers prior to this ruling was the
potential for workers to back-date claims for underpaid holiday back to 1998
when the Working Time Regulations came into force. This is because previous case law had
established that a worker can bring a claim for a ‘series of deductions’ as
long as the claim is brought within three months of the last deduction in the
series. The good news for employers is that the EAT’s decision restricts the
scope for workers to claim arrears of holiday pay. The EAT held that where there is a gap of
more than three months between any two deductions, the ‘series’ is broken. This means that if there has been a gap of more
than three months since a worker last claimed holiday pay, the worker cannot
back-date their claim. This
significantly reduces the potential cost of this decision for employers.
Other key points to note from the decision are:
- Workers will be entitled to include normal
non-guaranteed overtime in their holiday pay for the basic 4 weeks’ holiday under
the Working Time Directive. However, at this stage, there is no specific guidance
as to how this is to be calculated.
- Overtime will not be included in holiday pay for
the additional 1.6 weeks’ holiday under the Working Time Regulations.
Finally, it is worth noting that this decision is likely to
be appealed to the Court of Appeal so this may not be the end of the story.