Business

Holiday pay ruling: Who is affected?

Workers have won a landmark case at the Employment Appeal Tribunal (EAT) to include regular overtime in holiday pay.

But what does the ruling mean and how will it affect you?

What was the court hearing actually about?

Image caption Up until now most employers have paid holiday at an employee's basic rate of pay

Under EU law, workers are entitled to four weeks' holiday pay a year but there are no details on how it should be calculated. Up until now, the UK government has interpreted the EU Working Time Directive as saying that holiday pay should be at an employee's basic rate of pay, which means any additional payments for regular overtime aren't included.

As a result, most employers have not included regular overtime in their calculation of holiday pay.

The tribunal ruling suggests that the government and UK companies have been interpreting the EU directive wrongly.

The Employment Appeal Tribunal ruled on three test cases against the engineering company Amec, industrial services firm Hertel and maintenance company Bear Scotland.

The staff at these firms said they consistently worked overtime, but that was not included in holiday pay, meaning they received considerably less pay when on holiday compared to when they were working.

How many people will this affect?

Image copyright PA

It's difficult to say for sure. The government estimates that one-sixth of the 30.8 million people currently in work get paid overtime.

However, the government's figures are based on data from the Office for National Statistics data on the number of people in work between June and August 2014. It's not an accurate figure of the number of people who have worked regular overtime and who are likely to bring a claim.

"This decision does not open up the floodgates for past claims. What this decision does say to workers is, going forward, you will receive what the UN asked for in 1938 and again in 1970, and what Europe then asked for in 1998. Namely, you will receive a normal wage for your periods of rest," said Unite executive director Howard Beckett.

A recent survey of Federation of Small Business (FSB) members found that a third of small businesses with employees paid staff for voluntary overtime. It said that this suggested that up to 400,000 firms could be affected.

I work regular overtime. How do I make a claim?

Image copyright PA
Image caption Workers who feel they have a claim could contact conciliation service Acas

Unions are already asking workers who haven't received the same pay during their holidays as the rest of the year to contact them.

If workers are not part of a union, they could contact a claimants firm to fight their case, or approach their employer directly or via conciliation service Acas.

"Employers will now have to include overtime in calculating holiday pay, and those that don't should be under no illusion that Unite will fight to ensure that our members receive their full entitlement," said Unite's Mr Beckett.

30.8m

people in work in the UK

5m

do voluntary or compulsory overtime

  • 23% of full-time working men and 15% of part-time working men do overtime

  • 12% of full-time working women and 15% of part-time working women do overtime

Getty Images

While the Employment Tribunal has found in favour of the workers the companies can still appeal against the decision. The cases could then be referred to the more senior domestic Court of Appeal, or to the EU courts in Luxembourg for clarification on how the European law should be interpreted.

However, Addleshaw Goddard managing associate Annabel Mackay told the BBC this shouldn't affect a worker's claim.

"The decision may be appealed, but this main point on holiday pay is difficult to argue with. The key principle is guided by EU health and safety law that they don't want people to be put off taking their holiday because they will be paid less," she added.

How far back can I make a claim for?

Image copyright Getty Images
Image caption If there is a gap of more than 3 months, a worker can only claim for the previous holiday

The potential for backdated claims has been limited, with the tribunal ruling that employees cannot claim more than three months after the last incorrect payment.

Under some circumstances, employees may be able to claim holiday pay further back using a breach of contract claim.

"They [employees] would have to try and argue that the entitlement to holiday at the right rate was part of the contract and bring a breach of contract claim. Those claims can go back 6 years," adds Ms Mackay.

What does this mean for employers?

Image copyright Pablo Blazquez Dominguez
Image caption The Institute of Directors has called the issue a 'time bomb' which could wipe out some small businesses.

The Institute of Directors has called the issue a "time bomb" which could wipe out some small businesses.

And manufacturers' organisation EEF has said more than 90% of its members expect payroll costs to "spiral" as a result of the ruling.

Two-thirds of its members estimate that the change to holiday pay calculations will add more than 3% to their current payroll costs, while two out of five anticipate an increase of at least 5%.

"We won't see the full extent of damage until further down the line. There is a real danger that this ruling could ultimately hit jobs, pay and future investment," said Tim Thomas, head of employment policy at EEF.

Law firm DLA Piper says many employers will now need to decide how to deal with existing claims.

"Unions have already filed a substantial number of claims for underpaid holiday pay, which have been stayed pending the outcome of the appeal cases. The decision of the EAT may provide an incentive to settle claims, as the potential for back pay is now limited." it said.

It also said longer term, employers are likely to try to minimise the increased liability for holiday pay by using bank or agency staff to cover periods of increased demand rather than offering permanent staff overtime.