Firms urged to consider ‘holiday pay’ ruling

Businesses owners need to have a plan in place as soon as possible to deal with potential pay claims following last week’s ‘holiday pay’ ruling, according to a leading employment lawyer.

Roger Spence, a director and head of employment law at Harrison Drury solicitors in Preston, believes businesses need to understand how the ruling will affect them legally, financially and operationally.

The decision of the Employment Appeal Tribunal (EAT) on November 4 means holiday pay should be based on a worker’s normal pay, which may include overtime if they are regularly required to work extra hours, rather than their basic salary.

An appeal against the decision is expected to be lodged and a final decision may not be made for some time. However, Roger believes businesses need to be prepared to implement the changes.

He said: “There are a number of issues for businesses here. Firstly, does the ruling impact on them currently and how will they meet the cost of back-dated pay claims. Secondly, how does it affect their working practices in future - how do they ensure they are paying their employees correctly to avoid the risk of making unlawful wage deductions, thus, leaving themselves open to potentially costly employment claims. I would advise firms to seek expert legal and financial advice on the implications of this complex ruling.”

The recent ruling only applies to the four weeks’ holiday entitlement provided for by the Working Time Directive and implemented into UK law by the Working Time Regulations 1998. It does not apply to the additional 1.6 weeks’ holiday provided for by the Working Time Regulations, for which an employer is only obliged to pay the basic rate.

This means that an employer can remunerate the two types of leave at different rates. The ruling suggests that for a full-time worker the first 20 days’ holiday entitlement will be deemed to be payable at the worker’s ‘usual’ rate, whereas the additional eight days’ entitlement can be paid at their basic rate. Workers can only make a claim if they have been underpaid for holiday within three months of lodging a claim. Any claim involving a series of underpayments will be unsuccessful if there is a gap of over three months between the underpayments.