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How the recent ruling on Holiday Pay affects businesses

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The recent ruling of the Employment Appeal Tribunal (EAT) will affect employers whose workers are required to work overtime when they are asked to do so.

Holiday pay has usually been calculated with reference to a worker’s basic hours. The recent decision means that holiday pay should be based instead on a worker’s normal pay, which may include overtime if they are regularly required to work extra hours.

The ruling only applies to the four weeks’ holiday entitlement provided for by the Working Time Directive and implemented into UK law by the Working Time Regulations 1998. It does not apply to the additional 1.6 weeks’ holiday provided for by the Working Time Regulations, for which an employer is only obliged to pay the basic rate.

This means that an employer can remunerate the two types of leave at different rates.

The ruling suggests that for a full-time worker the first 20 days’ holiday entitlement will be deemed to be payable at the worker’s ‘usual’ rate, whereas the additional eight days’ entitlement can be paid at their basic rate.

Failure to make the correct payments could result in workers making claims in the employment tribunal for unlawful wage deductions.

However, workers can only make a claim if they have been underpaid for holiday within three months of lodging a claim.  Any claim involving a series of underpayments will be unsuccessful if there is a gap of over three months between the underpayments.

An appeal against the decision is expected to be lodged and a final decision may not be made for some time.

It is advised that firms seek expert legal advice on the implications of this complex ruling.

For more information on the new holiday pay ruling contact the Employment law team on 01772 258321.


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