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Overtime to be included in Holiday Pay Calculations

The Employment Appeal Tribunal provided confirmation in November 2014 that overtime should be taken into account when calculating holiday pay, allowing workers to receive their ‘normal remuneration’ rather than basic pay.  The calculation of this ‘normal remuneration’ will be decided on the basis of average pay over a 12 week period.

To provide some comfort to employers concerned about significant potential claims, new Regulations have been introduced for all claims lodged before 1st July 2015 to limit these to two years immediately prior to the date on which the claim is lodged.

Employers should also consider any claim against the limitations of a worker’s EU entitlement to holiday pay, being the point of reference for this judgment.  Whilst EU law provides workers with four weeks of paid holiday, which would need to be paid under the ‘average pay’ formula, UK works are entitled to an additional 1.6 weeks of paid leave under the Working Time Regulations (since 2007).   Whether employers will be able to rely on the distinction between these types of holiday entitlement, and pay this additional section of leave on a ‘basic pay’ formula will no doubt be a question for the courts in due course.

In the meantime, employers should ensure that the specific contractual provisions in place for their workers are clear and incorporate the new regime.


Posted in: Employment

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