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Holiday pay and overtime – oversight and overkill?

You won’t have missed the headlines in the newspapers announcing that workers can sue their employers for millions of pounds in holiday backpay claims.

In the UK, we normally calculate holiday pay based upon a worker’s basic salary – but we do not normally include overtime, commission or similar payments. A series of recent judgements have made it clear that European laws require employers to factor in overtime and commission payments – and anything else a worker would normally receive if they were working – so they are not dissuaded from taking holiday by being paid less when on holiday than when at work.

But some of the newspapers have missed out two crucial points.

First, this higher holiday pay rate only applies to the first four weeks’ paid holiday each year. The employer can continue paying basic salary for any additional annual leave (although note the rules are slightly different if the employee doesn’t have normal working hours).

Second, employees are unlikely to be able to bring large, historic backpay claims. The court decision makes it clear that if there is a three month gap in holiday underpayments then the employee cannot claim further back in time. So the reality is this affects holiday payments going forward, but employers are not as likely to face large backpay claims as the publicity might suggest.

Business groups and employers have expressed concerns at this decision and it is expected that the decision will be appealed to the Court of Appeal, so this may not be the final position.

David Whiscombe

Consultant

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