A much publicised judgment by the Employment Appeal Tribunal has recently concluded that the rate of holiday pay should include overtime.

Quite often, the rate of pay for holidays is calculated at the basic, contractual rate of pay.

Before all small employers throw up their hands in horror and possibly throw in the towel, several words of caution are in order.

The cases considered instances of employees working overtime so frequently that it was a settled pattern over a ‘sufficient period of time.’ In one case (there were actually 3 before the EAT concerning this issue) for example overtime appeared to be compulsory.

At first glance, as unpaid holiday pay would be classed as an unlawful deduction from wages, it would appear that most employers would be facing claims going back up to 6 years. The judge in this case, however, carefully redefined the time span for bringing claims, stating that any break of 3 months of more in making payments to the employee of this nature would be act as a barrier to bringing claims for payments due prior to the break. Thus a failure to include overtime for holiday over the Christmas period may be claimed within 3 months of the failure to pay, but going further back, a similar failure for a holiday in August would be ruled ‘out of time.’

It is yet another example for both employees and employers to keep their paperwork safe and up to date in order to protect their relevant interests, including contracts, procedures and pay slips/pay roll records. Reliance on memory, hearsay and that old chestnut ‘custom’ is notoriously unreliable and when pound notes start to appear in peoples’ eyes old loyalties tend to evaporate.

This decision is almost bound to be appealed to the Court of Appeal, if not then the Supreme Court and any litigation in this area would therefore be placed on hold pending a decision. A prudent employer, however, would be advised to make provision for overtime to be included in holiday pay going forward. As for employees, the other old adage at the moment that seems applicable is, ‘if you don’t ask, you don’t get.’

One issue left hanging for the moment is, if overtime is to be included in ‘normal’ pay for the purposes of holiday pay, it may also become even more widely accepted in calculations for a week’s pay when establishing redundancy and unfair dismissal payments. I again refer to the above paragraph concerning records.


For advice on employment law issues,
contact Ian Clay at Walker & Co
01709 817112   
ian@walkersolicitors.co.uk