Larsen & Co


Holiday Pay Ruling – How will it affect you?

On 4th November 2014 the Employment Appeal Tribunal ruled that employers must take into account all pay when calculating how much an employee should be paid while they are on holiday.

But what does this mean for businesses that pay regular overtime?

1.       This ruling comes into immediate effect without the need for any further legislation. This means as an  employer if you pay overtime regularly you will need to adjust your holiday pay immediately otherwise your employees may have  tribunal claims for unlawful deductions from wages.

2.       All workers must be paid "normal remuneration" during statutory holiday (5.6 weeks per annum including bank holidays). This would be average pay rather than basic pay and must include overtime payments including non-guaranteed overtime.  It does not however, include voluntary overtime where staff can refuse to work if asked. 

3.       Employees can make retrospective claims for paid holiday in the last 3 months – earlier holiday payments can form part of the claim only insofar as there is not a gap of more than 3 months between them.       

4.       If you currently make regular overtime payments or allowances, then you need to with immediate affect review and change how you calculate employee’s pay whilst they are on holiday (and when they leave) to reflect average pay (over the previous 12 weeks).  In addition, you will need to review your records for the past year and where there is not a 3 month gap between holidays, make retrospective top up payments.

If you require any further information or need help implementing this decision please contact us.