Are employees entitled to more holiday pay?

A landmark ruling by the Employment Appeal Tribunal has ruled that various payments, including overtime which an employee would normally work, must be taken into account when calculating their holiday pay. The cases of Bear Scotland -v- Fulton, Baxter, Hertel (UK) Ltd v Wood & Others and Amec Group Ltd v Law & Others could potentially have huge implications on both employers and employees when it comes to calculating holiday pay. Lawyers and employers alike have been waiting for this decision due to the potentially huge impact it could have on them. Briefly, many elements of pay are currently excluded when holiday pay is calculated by employers. European law has, in a number of cases, made it clear that holiday pay must be equivalent to ‘normal’ remuneration which, is what an employee would expect to be paid for their typical working hours. These previous cases have found that sums such as commission payments may need to be included when calculating how much holiday pay an employee is entitled to. The EAT’s Judgment, however, goes further than this. In this case employees of Bear Scotland worked 6 hours overtime per week which,  although it was not guaranteed to the employees, they were obliged to work it as necessary. Employees on holiday would not, however, be paid for these extra 6 hours, instead only being paid for non-overtime hours. The EAT found that, because they were obliged to work this overtime, they were worse off financially when taking annual leave (a legal entitlement). Employees of Hertel and Amec were paid a radius allowance and travelling time payment. When on annual leave, however, none of the employees would receive these payments. Again, the EAT found that they were effectively being penalised financially for asserting their legal right to take paid annual leave. The EAT decided that these payments should in fact be included when working out normal remuneration for the purposes of holiday pay, meaning that the employees had been underpaid when on holiday. This ruling only applies to the basic  4 weeks’ holiday granted by law, and includes neither the 8 days public/bank holidays nor any additional holiday entitlement an employee may receive. This will no doubt cause employers problems when calculating the amount of holiday pay an employee is entitled to, as in effect there will be two different amounts of ‘normal’ remuneration. The Judgment has furthermore limited the length of time that an employee can claim for these unpaid sums. The EAT found that any claims in respect of underpaid holiday pay are limited to those where no more than three months has elapsed between any underpayments. It was previously thought that claims could have been backdated to 1998, so this is a significant part of the ruling by the EAT. Permission has been given to appeal to the Court of Appeal and, because of the potential liability employers may now face, it seems highly likely that an appeal will be made. The Department for Business, Innovation and Skills have also already announced that a task force will be set up to look at the impact of this ruling on businesses. Whatever happens next, however, it is clear that employers and employees alike need to seriously consider their rights and obligations. Employers may need to consider, for example, how they distribute overtime to staff and any contractual provisions relating to overtime; employees need to consider whether they are in fact owed holiday pay by  their employer.