Holiday pay and overtime - What you need to know

Holiday pay and overtime - What you need to know

A recent Employment Law ruling regarding holiday pay and overtime will have significant ramifications for all UK employers, who pay staff wages.

The old rules

Prior to the ruling, employers would calculate holiday pay for their employees based on their basic salary.  In addition, no commissions or bonuses were taken into consideration when calculating the holiday pay.

What is changing?

The recent decision confirms that where overtime is required to be worked by the employee within the terms of their contract, this will constitute part of their basic salary when calculating holiday pay.  The decision also applies to non-guaranteed overtime, where the employee is required to work if so asked by the employer, but the employer is not obliged to provide it.

Voluntary overtime is not covered by the decision, but it seems likely that the rules will be extended to include this in future.

What are the effects of this?

As yet, the main implications of this decision are unclear. Undoubtedly the ruling will lead to higher wage bills for employers in future.  However, Business Secretary Vince Cable has set up a taskforce to assess the implications, with a view to safeguarding the position of UK SME’s.

Whilst some press reports suggested that employees would be entitled to claim for backdated holiday pay as far back as 1998, the UK courts have ruled that claims must be brought within three months of the last pay deduction. 

Action for employers

• Review current arrangements with Human Resources/Employment Law specialists;
• Review payroll records to determine which employees may be entitled to an uplift in holiday pay;
• Review data to determine which employees may be within the three month time limit in order to make a backdated claim for pay.

If you would like more information, please don’t hesitate to contact our dedicated payroll team on the details below.  We will, of course, provide you with further updates in due course:

Emma Lambert
telephone:  01942 292557

Bill Evans
telephone:  01942 292546