Employees may be able to claim extra holiday pay based on regular overtime

Following a ruling yesterday by the Employment Appeal Tribunal, employees who have worked regular overtime may be able to claim extra holiday pay. Until now, employers generally pay

holiday at an employee’s basic rate of pay. The tribunal ruling suggests that the government and UK companies have been interpreting the relevant EU directive wrongly, and that the employers should include regular overtime in their calculation of employees’ rate of pay for the purposes of calculating holiday pay.

The Employment Appeal Tribunal ruled on three test cases against the engineering company Amec, industrial services firm Hertel and maintenance company Bear Scotland.

The Institute of Directors responded to the ruling, calling the issue a “time bomb” which could wipe out some small businesses. The manufacturers' organisation EEF said more than 90 per cent of its members expect payroll costs to “spiral” as a result of the ruling. Two-thirds of its members estimate that the change to holiday pay calculations will add more than 3 per cent to their current payroll costs.

A recent survey of Federation of Small Business members found that a third of small businesses with employees paid staff for voluntary overtime. It said that this suggested that up to 400,000 firms could be affected.

The UK government estimates that one-sixth of the 30.8 million people currently in work get paid overtime, according to a report on the BBC.

While the Employment Tribunal has found in favour of the workers, the companies can still appeal against the decision. The cases could then be referred to the Court of Appeal, or to the EU courts in Luxembourg for clarification on how the European law should be interpreted.

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