Holiday pay

The Employment Appeals Tribunal (EAT) held that, in certain circumstance, holiday pay must be calculated on the basis of not just basic pay, but overtime as well. It judged that overtime, can be “intrinsically linked” to the performance of tasks under a worker’s contract and, if so, will therefore form part of their “normal remuneration”.

This judgement is clarification of the the law as it already stands, it is not new law. It follows that if an employer has continuously failed correctly to calculate holiday pay then it may be liable for backdated payments for a period of up to 2 years relating to the series of miscalculations.

Where there has been a series of deductions arising from the employer’s failure to calculate holiday pay correctly, workers may bring claims for all incorrect deductions in that series. However, a series will be broken if there is a gap of more than three months between deductions, and any claim for holiday pay wrongly calculated deducted prior to the 3 month gap will be out of time.

It is important to note that the ruling relates only to the 20 holiday days under the Working Time Directive, not the 8 additional days granted by the Working Time Regulations or to any other additional holiday granted under the individual’s contract. This is a significant because it makes it less likely that a series of deductions will span a period of time greater than a single holiday year.

Additionally, workers may only bring claims in the employment tribunal within 3 months of the last deduction in a series. The termination of employment will unequivocally be a break in the series, so former employees whose employment terminated more than three months ago and who have not taken steps to bring claims will be out of time.

In addition to facing having to pay arrears of holiday pay to the workers concerned, employers will also have to budget for the NICs that will be chargeable.