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The Employment Appeal Tribunal (EAT) has today delivered judgment on three test cases concerning the calculation of holiday pay.

The right to paid holiday comes from the Working Time Regulations 1998 (WTR). The WTR were implemented in the UK because of the Working Time Directive (WTD).

The issue before the EAT was whether or not paid overtime should be included when calculating holiday pay. Where holiday pay has not been paid correctly, an employee can make a claim for an ‘unlawful deduction from wages’.

The EAT concluded that payments for overtime which the employees were required to work, though which their employer was not obliged to provide, is part of normal remuneration and has to be included in the calculation of pay for holiday leave purposes.

The EAT also stated that the claimants could claim the consequent arrears of pay as being unlawful deductions from their pay under the Employment Relations Act 1996.

However, the EAT limited the right to arrears of pay by stating that such arrears could only be claimed where a period of less than 3 months had elapsed from the last unlawful deduction. Importantly, the EAT curtailed the right to back date claims by holding that any series of deductions punctuated by a gap of more than 3 months extinguished the tribunal's jurisdiction to consider the complaints that it was unpaid. That restricts the right of employees to link two or more holiday leave periods for historic claims.

So where does that leave businesses?

  1. Holiday pay bills in the future may increase in respect of those employees who are required to work overtime.
  2. The right to claim arrears of holiday pay seems to have been limited. It is not the bonanza some might have predicted, but claims and the threat of claims, will undoubtedly add more unforeseen costs to business.
  3. Leave to Appeal has been granted. The cases will go to the Court of Appeal, that means a final decision may be a considerable way off.



This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information contained.


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