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Businesses ‘should review holiday pay’ following major ruling

An employment law expert is warning businesses to review their holiday pay calculations following a major legal ruling which means some overtime should be included in holiday pay.

The Employment Appeals Tribunal ruling means that some people working overtime could claim for increased holiday pay. Under current rules, only basic pay is counted when calculating holiday pay.

The appeals tribunal was ruling in two separate cases involving employees from different companies who believed their overtime should be included in these calculations.

As part of the ruling, the tribunal decided that overtime an employee is obligated to perform should indeed be included in holiday pay calculations. This only applies to the basic four weeks’ leave granted under the Working Time Directive, part of European Law, and not the additional 1.6 weeks prescribed by UK law.

Stacey Carter, solicitor in the Employment team at Napthens, said the ruling is likely to be appealed, so a final legal decision could be years away. However, Stacey warns that businesses should take action now to prepare.

She explained: “Even though the decision is likely to be appealed, it is more than likely that the principal to include obligated overtime will remain.

“As the obligation only refers to the first four weeks taken by an employee in any leave year, rather than the extra given under UK law or any additional contractual holiday, employers may need to operate different calculations of holiday pay for the different types of leave. Some may simply adopt a uniform approach at their discretions.

“It is sensible for employers to take advice now rather than wait for any future legal decision. Due to the complex nature of calculating the different types of leave, it will undoubtedly take time for businesses to bring their working practices up-to-date, so waiting is not the best option.”