Warning to employers over holiday pay after landmark ruling

By KMC Human Resources

06 Nov 2014

Employers who pay staff overtime are being warned that they may have to include any extra hours worked when calculating holiday pay, after a landmark ruling on 4 November 2014.

The decision in 3 cases - Bear Scotland v Fulton and Baxter, Hertel (UK) Ltd v Wood and others; and Amec Group Ltd v Law and others - has been long-awaited by UK businesses, who will going forward have to allow for overtime when calculating employees’ holiday pay.

The claimants argued that they were required to consistently work overtime and that they therefore received considerably less pay when they had taken time off on annual leave than in normal working months.

Since the introduction of the Working Time Directive in 1998, the interpretation in the UK in relation to holiday pay was that employees would be entitled to 4 weeks’ paid holiday, with the rate of pay calculated as per their basic salary. The ruling from the EAT (Employment Appeal Tribunal) implies that UK businesses have been misinterpreting the directive and that actually, employers need to take other factors, such as overtime, into consideration.

Karen Credie of KMC HR commented: “This landmark ruling is something that all employers need to take note of. Whilst most businesses will have been duly paying staff for periods of holiday entitlement based on their basic salary, this will need to be addressed going forward to take into account the revised rules”.

Mike Emmott, employee relations adviser at the CIPD, said: “The UK government and employers have been acting in good faith in implementing the terms of the Working Time Directive over how holiday pay is calculated and it is disappointing the scope for ambiguity was not identified at a much earlier stage.”

The cases in the tribunal were based on claims for non-guaranteed overtime and a distinction was drawn between this and voluntary overtime, the latter of which was not directly addressed in the judgement.

Karen explains: “Non-guaranteed overtime is defined as time worked in addition to set working hours that there is no obligation for employers to provide but there is an obligation for employees to perform it if requested. Voluntary overtime, on the other hand, is where there is no contractual obligation for employees to work additional hours."

Whilst the news is not good for businesses, it does at least seem that they will be unlikely to face substantive retrospective claims from employees, as previously feared. The judgment confirms that claims for back pay will be out of time if there has been a break of more than 3 months between successive underpayments.

It is likely that the EAT decision will face appeal and it may therefore be some time until a definitive conclusion on the topic will be reached. But with further decisions due on whether commission, shift allowances and some types of bonuses should also be included in holiday pay calculations, this is certainly one for employers to keep a very close eye on. Karen concluded: “The advice on calculation of holiday pay remains unclear in some parts and employers should be advised to seek advice if they are at all unsure."

Latest news

1

Roundhouse secures approval for new £15m office and industrial scheme in Preston Momentum

Roundhouse secures approval for new £15m office and industrial scheme in Preston

25 Jul 2025

2

Homebuilder's high-performing sales advisers clinch awards Ben Garland and Julia Lorente

Homebuilder's high-performing sales advisers clinch awards

24 Jul 2025

3

Work is set to start on Multiversity project Multiversity Blackpool

Work is set to start on Multiversity project

24 Jul 2025

4

BAE Systems welcomes MOU between Republic of Turkiye and UK for purchase of Typhoon aircraft Typhoon production Warton

BAE Systems welcomes MOU between Republic of Turkiye and UK for purchase of Typhoon aircraft

23 Jul 2025

5

Assystem to double UK jobs to deliver Sizewell C EDF Assystem

Assystem to double UK jobs to deliver Sizewell C

22 Jul 2025

Background image for hub sign up block

LBV Hub

Leverage Lancashire Business View platforms

Post your news
Post your events
Post your offers
Build your network
Improve your SEO
Gain coverage in the magazine
Sign-up
Events
Lancashire Built Environment Conference 2025
BEC 315 X 315 Px
Networking
25 Sep 2025

Lancashire Built Environment Conference 2025

Blackpool Football Club, Blackpool, FY1 6HX

08:30 - 13:00

CMI Level 5 Management and Leadership Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Management and Leadership Course

Preston Campus, Preston , PR1 2HE

09:00 - 17:00

CMI Level 5 Project Management Course
UCLanAerialCampus.jpg.jpg
LBV Hub Seminars
21 Feb 2025 - 21 Feb 2026

CMI Level 5 Project Management Course

Preston Campus, Preston, PR1 2HE

08:00 - 17:00

Preston Tech Connection: Buzz Word Bingo. Challenging Todays's Buzzwords In Tech
July PTC banner long updated.png.png
LBV Hub Networking
29 Jul 2025 - 29 Jul 2025

Preston Tech Connection: Buzz Word Bingo. Challenging Todays's Buzzwords In Tech

Society1, Coworking Space, Preston, PR1 3LT

18:00 - 19:30

Preston Freelancer Meet-Up: July
Longer July Banner.jpg.jpg
LBV Hub Networking
31 Jul 2025 - 31 Jul 2025

Preston Freelancer Meet-Up: July

Society1, Coworking Space, Preston, PR1 3LT

10:00 - 11:30

Advantage: AI – A Workshop for Business Leaders – August 14th
Navy--Event Tile.png.png
LBV Hub Seminars
14 Aug 2025 - 14 Aug 2025

Advantage: AI – A Workshop for Business Leaders – August 14th

Door4 Office, Burnley Wharf, Burnley, BB11 1JG

09:00 - 12:00

The Business Network Central & East Lancashire
LBV Header (24).png.png
LBV Hub Networking
21 Aug 2025 - 21 Aug 2025

The Business Network Central & East Lancashire

Mytton Fold, Langho, BB6 8AB

11:30 - 14:15

Morecambe Bay Walk
Walk.jpg.jpg
LBV Hub Awards
30 Aug 2025 - 30 Aug 2025

Morecambe Bay Walk

Arnside, CARNFORTH, LA5

09:30 - 14:00

Longridge Soap Box Derby
Screenshot 2025-06-10 090035.png.png
LBV Hub Fundraisers
14 Sep 2025 - 14 Sep 2025

Longridge Soap Box Derby

Berry Lane, Longridge, PR3 3WH

10:00 - 16:30

Cumbria Business Expo 2025
https---cdn.evbuc.com-images-880461633-4862066883-1-original.20241022-110415.jpeg.jpg
LBV Hub Exhibitions
19 Sep 2025 - 19 Sep 2025

Cumbria Business Expo 2025

Carlisle Racecourse, Carlisle, CA2 4TS

09:00 - 15:00

Help to grow management course
Help to grow - barriers to growth.png.png
LBV Hub Seminars
26 Sep 2025 - 16 Dec 2025

Help to grow management course

Preston Campus , Preston , PR1 2HE

09:00 - 15:00

RISE - Lancashire's unique leadership programme for women
thumbnail_Emma Weston Illustration WENDY BOWERS RISE Illustrstion.jpg.jpg
LBV Hub Seminars
22 Oct 2025 - 18 Mar 2026

RISE - Lancashire's unique leadership programme for women

East Lancashire Chamber of Commerce, Clayton le Moors, BB5 5JR

09:30 - 15:30

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV 123 Online Graphic
Subscribe now

Weekly news bulletin