New holiday pay ruling

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For some time now, following European decisions, employers have been unsure whether they are obliged to include overtime payments (particularly overtime which is not guaranteed and regularly worked) when calculating holiday pay. However, yesterday the Employment Appeal Tribunal has ruled on these points and found that it must be included.

It was clarified that:

  • Non-guaranteed overtime must be taken into account when calculating annual leave payments
  • This only applies to the basic 4 weeks’ leave granted under the European Working Time Directive, not the additional 1.6 weeks the UK government implemented under the Working Time Regulations
  • In most cases claims for arrears of holiday pay will be out of time if there has been a break of more than three months between successive underpayments
  • Any travel time payments, which exceed expenses incurred and so amount to additional taxable remuneration, must also be included when calculating holiday pay.
  • An appeal to the Court of Appeal has been granted so it is not the end of the matter but for now employers are best advised to review and change their calculation of holiday pay if necessary.

    If you need advice on this issue, please contact Alison Close on 01625 531676 or email

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