The UK Employment Appeal Tribunal ruled that non-guaranteed overtime must be included in holiday pay calculations, allowing employees to submit backdated claims for unpaid holiday pay covering up to two years. This impacts about 1 in 6 UK employees and has serious ramifications for businesses. Employers can limit their exposure by calculating holiday pay based on the average overtime from the previous 12 weeks, using a two-tier system for payment, or paying an additional percentage of non-guaranteed overtime to reflect statutory leave entitlement. Employers must also budget for potential backdated claims and consider alternatives to overtime such as using agency staff.

1. A recent rulingmeans that 1 in 6 UK employeeswill be entitledtoenhancedholidaypay and may
be able submit backdated holidaypay claims. Previouslyonlybasic pay was consideredwhen
calculating holidaysbut now overtime, bonuspayments and commissionmust be taken into
account whencalculating holidaypay. Whatare the implicationsfor UK businessesandhow can
they limittheirexposure to backdated claims?
The UK EmploymentAppeal Tribunal’s holidaypayrulinginNovembersentshockwavesaroundUK
businesses. Itruledthat non-guaranteedovertime shouldbe factoredintoholidaypaycalculations
and that employeeshave the righttoclaimforbackdatedunderpaymentsof holidaypay. The main
pointsof the rulingare:
 Anynon-guaranteed overtimethatwasworkedbythe employeeinthe 12-weekperiod
before the holidaymustbe takenintoaccount.
 The rulingappliesevenwhere overtimeisvoluntaryandwhere itisnotguaranteed
 It onlyappliestothe first4 weeks(includingbank/publicholidays) of holidaystakenineach
holidayyear,anyremainingholidayscanbe basedonnormal basicpay.
 If there is a breakof 3 monthsbetweensuccessive underpaymentsthenthe amountwhich
an employeecanrecovermaybe limitedorthe claimmay be out of time entirely
It mustalso be notedthatin May last yearthe EuropeanCourt of Justice ruledthatcommission and
bonuspayments shouldalsobe factoredintoholidaypaycalculations.
The reasoningisthat workersshouldnotbe financiallypenalisedfor takingannual leave byreceiving
lessthan“normal remuneration”duringtheirleave.
There wassome good newsforemployersasthe UK Governmentrecentlyruledthatbackdated
holidaypayclaimsare limitedtotwo yearsnotfifteenasinitiallyfeared. However,the twoyear
limitationperioddoesnotapplytoclaimslodgedbefore July2015, therefore employerscanexpecta
deluge of claimsbetweennowandthen.
If your business hasemployeesinreceiptof non-guaranteedovertime thenyouhave the following
options:
 You can keepthe statusquo and do nothingbutthis couldresultina claimand impacton
employeerelations –notthe bestoption!
 Calculate the average of relevant payoverthe previous12weeksandpayall leave at the
same rate
 Have a twotiermethodof calculatingholidaypay(paymentforthe first20 daysonlyand
thena differentmethodof paymentforholidayoverandabove 20 days)
 Payingan additional percentage of all non-guaranteedovertimeundertakenbythe
employeereflective of theirstatutoryannual leave entitlement(thiswouldneedto
calculatedcarefully).
You will alsoneedtoconsiderwhetheryoubudgetinthe current financial yearforanyvalidclaims
your employeesmayhave forbackdatedpay.
In orderto minimise the financialimpactgreaterconsiderationwill now have tobe takenwhen
grantingholidaysespeciallyduringperiodsof highovertime. Alternativestoovertimeshouldalsobe
considerede.g.use of agencyorbankstaff to cover additional hours.
Thisrulinghas seriousramificationsforUKemployersandshouldnotbe ignored. Solve.’sexpert
teamcan advise youonhowto negotiate thiscomplexissueand safeguardyourbusinessfrom
holidaypayclaims.