LONDON Nov 3:Businesses are facing a multibillion-pound bill as a tribunal ruled today that overtime should be taken into account when holiday pay is calculated.
In a landmark case, the Employment Appeal Tribunal ruled that it is wrong for employers to only take into account basic pay when calculating how much an employee should be paid while they are on holiday.
"This will have huge repercussions for UK employers. Whilst today’s judgment is highly technical the core message is quite clear: employers who pay only basic pay during holidays are selling employees short. Holiday pay is an issue that impacts every business and many employers now face a whole-sale rethink of how they pay their employees and calculate costs," said Paul McFarlane, partner at Weightmans law firm.
The cases involved employees at industrial services company Hertel, engineering firm Amec and roads maintenance business Bear Scotland.
Under EU law, staff are entitled to four weeks’ holiday pay a year but there are no details on how it should be calculated.
The UK’s interpretation of the law, implemented in 1998, says holiday pay should be at the basic rate, and it is a grey area for those who work overtime or receive variable pay.
The Employment Appeal Tribunal ruled today that voluntary overtime and being on stand-by for emergency call-outs should be included in holiday pay. However, it is unclear whether there will be a backpay liability for employers.
Around five million workers, a sixth of the total UK workforce, currently do overtime.