There has been some panic whipped up in the media about employers having to pay vast amounts of back-dated holiday pay to employees who regularly get paid for overtime.
In general holiday pay is calculated according to an employee’s “normal pay”, which for years has been judged not to include overtime payments. However, in a recent Employment Tribunal (Fulton v Bear Scotland  UKEATS/0047/13), the judge decided that both guaranteed and non-guaranteed overtime should be included in the sum of “normal pay” on which holiday pay is based. The tribunal also determined that employees could make back-dated claims for unpaid holiday pay.
In response to this ruling the Government has changed the 1998 Working Time Regulations, such that paid holiday is not a contractual right and any underpayments of holiday pay cannot be pursued as a breach of contract in the civil courts.
Also as a further precaution new regulations have been made to limit the amount of underpaid holiday pay employers may be liable for.
From 1 July 2015 new regulations will limit claims to underpaid holiday pay to a period of two years. Without this change in regulations claimants would have been able to tie underpayments of holiday pay where commission and non-guaranteed overtime had not been included, for up to 16 years back to the implementation of the Working Time Regulations in 1998.
There will be a six month transition period to allow claims for longer periods to be submitted where the claimant makes a claim within three months of the last perceived incorrect holiday payment.
If your workers present you with a claim for unpaid holiday pay, we can help you calculate if the claim is correct, and whether you are liable to pay the amount claimed.