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Holiday pay

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Over the past 6 months there have been a number of significant developments, giving certain employees increased rights to holiday pay.

On 4 November 2014 the Employment Appeal Tribunal (EAT) made a landmark decision in Bear Scotland Ltd v Fulton. The EAT held that employers are required to take into account non-guaranteed overtime payments when calculating holiday pay in respect of the 4 weeks minimum annual leave required by the Working Time Directive.

In December 2014 the government announced that there will be a 2 year cap on any back pay claims lodged on or after 1 July 2015. It has been estimated that 1/6th of the 30.8 million people in work are paid overtime. They will now be able to bring retrospective claims for overtime which was not paid when their holiday pay was calculated.

The decision of Lock v British Gas Trading Limited also increased the rights of employees when it comes to holiday pay. The judgment, on 25 March 2015, concerned employees who receive sales-related commission on top of their basic pay. The implication of this decision is that commission and similar payments are to be included in employees’ holiday pay and that words to that effect should be added to the Working Time Regulations 1998. However, British Gas announced at the beginning of May that it will appeal. It is likely that the EAT will hear the appeal towards the end of 2015.

These cases are unlikely to be the last word on the issue of holiday pay - appeals are expected and more cases are likely to follow. The decisions still leave a significant amount of uncertainty as many of the cases deal only with particular points relating to a specific set of circumstances, rather than the wider issues relating to the calculation of holiday pay. Employers should continue to look out for decisions about holiday pay as the issue looks set to continue for some time now.

For advice on the recent changes to the calculation of holiday pay, for both employers and employees, please contact a member of our Employment Team.