Holiday pay must include overtime and commission, rules Employment Appeal Tribunal

A landmark ruling by the EAT has changed the way businesses must calculate holiday pay, potentially costing local businesses thousands to apply. The EAT ruled that employers should calculate holiday pay based on all hours worked not just 'basic pay', as was previously the case. This means that essential overtime and commission should now be included in calculations. Workers can now, potentially, ask for previous holiday pay to be recalculated to take this into account, if it is less than three months since their last holiday.

This applies to the minimum four weeks' holiday required by EU law and not the additional 1.6 weeks provided by UK regulations or any discretionary holiday on top of that.

This ruling presents a number of grey areas concerning the interpretation and application of the Working Time Directive alongside the Working Time Regulations. It is not understood, yet, whether legislative change will follow.

What do you need to do now?

• Business should review their holiday pay processes and procedures to ensure that they are up to date with this ruling.
• Businesses should seek legal advice from a professional to confirm that they are acting within the new rulings.
• Communicate these changes to employees so that they are aware of their rights and the restrictions on claims.
• Keep following our ForWards blog for more information on this, as it develops.

For more information on this please contact James Taylor (Employment Disputes) or Bridget Juckes (Employment Contracts).