Overtime to form part of worker’s holiday pay

News Article

Karl Barnes, a Solicitor at Essex-based law firm Palmers discusses the implications of this morning’s holiday pay ruling at the Employment Appeals Tribunal.

This morning, the Employment Appeals Tribunal has handed down its judgment in the case of Bear Scotland vs Fulton and others; the much anticipated decision has ruled that voluntary overtime payments should be taken into consideration when calculating a worker’s holiday pay entitlement. As a result of today’s ruling it is estimated that approximately five million workers in the UK could be entitled to more holiday pay at a potential cost to companies of billions of pounds.

This decision has centred upon Article 7 of the Working Time Directive which states that workers must have the right to paid annual leave, however it does not specify how a worker’s pay should be calculated and this has historically been left to national legislation to determine. Under present UK domestic legislation, only contractually guaranteed overtime has counted when calculating holiday pay.

Today’s result is expected to have huge ramifications for all companies whose workers carry out overtime above their contracted hours. With one sixth of the 30.8 million workers getting paid overtime, a significant number of claims can be expected as a result of today’s judgment.

It is anticipated that the ruling will be appealed to the Court of Appeal or referred to the EU Courts in Luxemburg for clarification on how European law should be interpreted. Interestingly, on previous referrals, the EU Courts have ruled that commission and bonus payments should be included in holiday pay which may provide an indication as to their potential approach should today’s decision be referred. By way of some potential consolation for employers, this ruling would only apply to the basic 4 weeks’ leave stipulated under the Working Time Directive rather than the additional 1.6 weeks entitlement added by domestic legislation (Working Time Regulations 1998).

With either an appeal or referral likely, it may be some years before we have a final decision on whether overtime should form part of holiday pay. In the meantime Business Secretary, Vince Cable has announced he is setting up a new ‘taskforce’ to urgently assess the impact of the ruling.