Overtime should be included in holiday pay, rules EAT

It was decided that the Working Time Regulations can be interpreted in accordance with the EU Working Time Directive and European Union case law, so that holiday pay should be calculated with regular overtime included, rather than being based solely on basic salary.

This ruling potentially opens the gate to many backdated claims which could cost businesses huge sums – however, the good news for employers is that if more than three months have elapsed between the latest incorrect payment and the employee's last holiday or incorrect payment, they will not be able to backdate the claim to include this.

Approximately five million workers in the UK currently do overtime.  Employees can make backdated claims, but only if less than three months has elapsed since their last holiday or incorrect payment.

Senior politicians and business leaders have spoken out against the EAT’s verdict.

Business Secretary Vince Cable has said he has set up a taskforce to assess the implications of the ruling, and the potential harm it will do to UK employers.

“Government will review the judgement as a matter of urgency,” he said.

“To properly understand the financial exposure employers face, we have set up a taskforce of representatives from government and business to discuss how we can limit the impact.”

Meanwhile, the Confederation of British Industry also voiced its dismay at the decision.

John Cridland, the CBI’s director general, said: “This is a real blow to UK businesses now facing the prospect of punitive costs possibly running into billions of pounds – not all will survive, which could mean significant job losses.”

However, the trade union Unite, which brought the case, has dismissed these concerns.

It argued that far fewer people would be affected than the “hysterical” claims made by business groups suggested.  They point to the fact that the tribunal has ruled out holiday claims from previous years, by restricting backdated claims to within three months of the latest claim.

For a more detailed analysis of this case, please click here.

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