Workers are entitled to higher rates of holiday pay

November 5, 2014

Earlier today the Employment Appeal Tribunal announced its decision that workers should receive their normal remuneration during paid holiday rather than their basic salary or hours’ pay.

In the related appeals of Hertel v Wood, BEAR Scotland v Fulton & Baxter and Amec v Law, the EAT considered whether workers were entitled to receive their normal pay during holiday. Normal pay might include overtime payments and similar supplemental payments, which could rapidly increase the cost to employers of paid holiday.

The EAT decided that the Working Time Regulations 1998 can be read as being compliant with relevant European legislation (the Working Time Directive) thereby requiring supplemental payments to be included in holiday pay. This means that any employer which pays its employees basic pay only during holiday is at risk of a claim for the value of supplemental payments which should have been paid during holiday.

However, the (comparatively) good news for employers is that employees are unlikely to be able to make huge claims for years of under-valued holiday pay: the EAT decided that a gap of more than three months between deductions (i.e. underpaid holiday) would mean that claims in respect of the earlier deductions (i.e. periods of underpaid holiday) are out of time. Since “EU holiday” (i.e. 20 days for full time workers) should be taken first, any additional holiday (such as the additional 8 days’ holiday granted by the Working Time Regulations, or any contractual holiday) would not be included in the calculation. It therefore seems likely that few employees will be able to show that they have had a break of less than 3 months between periods of “EU holiday” over a long period of time.

What does this decision mean for me?

The practical effect of this judgment is that employers should review which holiday employees have taken in the last three months (20 days’ EU holiday, or additional holiday under the Working Time Regulations or their contractual) and assess whether additional payments should be made. Employers should also consider revising their holiday pay policies to address supplemental payments during holiday and explain how they will be calculated during holiday (whether during “EU holiday” or all holiday).

Leave to appeal the decision has been granted, and the Government has announced the setting up of a task force to review the impact of the decision, so this judgment is unlikely to be the end of the road. For that reason, some employers may be prepared to wait for the outcome of any appeal before revising the way they calculate holiday pay - even though that risks imminent Tribunal claims.

A more detailed analysis of the judgment and its impact on employers will follow later this week, but should you have any immediate queries about this alert please contact your usual Fox Williams adviser.

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Aron Pope
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