In December 2014, the Employment Appeal Tribunal (EAT) made a significant ruling on how holiday pay should be calculated for employees who work overtime. The ruling came out of the dispute between Bear Scotland v. Fulton, in which the plaintiffs contended that their non-guaranteed overtime should be included in their holiday pay. While employees must accept overtime work if offered, employers are not obliged to offer it (which differs from voluntary overtime where employees aren’t contractually obliged to accept if/when their employer offers it). The impact on employers is that this ruling will form part of the Wages Regulation from 1 July 2015.

Already, employers are liable to pay employees non-guaranteed overtime, should an employee put in a claim. However a saving grace for employers is that claims for underpayment of holiday can only be made within three months of the most recent underpayment. An employee will not be eligible to make a claim if there is a break of three months or more between periods of underpayment.

What does this mean for you?

If you haven’t yet, it means you may need to review how you track overtime and employee time off. Until the EAT ruling, only basic pay was taken into account to compute holiday pay. Now employers must take “non-guaranteed overtime” into account, as well as other allowances that may be included in an employee’s normal compensation.

While the ruling may be challenged in court and modifications made to the judgement, your organisation may still be liable to pay overtime claims. Therefore effective time and attendance tracking has become even more important now for employers wishing to avoid pay disputes.

Co-author: Pamela Oldfield