New EAT ruling and the possible impact for employers.

18 Nov

It seems it never rains but pours for employers!

What’s happened?

The Employment Appeal Tribunal (EAT) has ruled that an employee’s holiday pay should include the amount that they would ordinarily earn from commission and working regular, non-guaranteed overtime.

What does that mean?

It means that where an employee’s normal pay varies due to overtime, the calculation of their holiday pay will be based on a 12 week average of salary earned. Prior to this, holiday pay has been calculated based on an employee’s basic salary, meaning those who regularly work overtime are often paid much less when they are on holiday.


Workers at a road maintenance firm and an engineering consultancy management company, won their claim in the employment tribunal that their employer should have included in their holiday pay, a calculation for the regular overtime they were required to work if asked.  The employers were not contractually obliged to offer this overtime, but did so regularly. The companies appealed against the employment tribunal decision, and the cases were heard together by the EAT.                (Cases Bear Scotland Ltd v Fulton; Hertel (UK) Ltd v Wood).

What’s the impact for employers?

It is not looking as bad as some expected. The EAT have had the good sense to limit the potential for backdated claims. Under the ruling, employees can claim back pay only if it is less than three months since their last holiday. This will significantly limit the size of potential pay-outs to one sixth of the 30.8m employees in the UK who regularly work overtime. It was initially feared companies could be hit with claims dating back to 1998!

The ruling will predominantly affect companies in the manufacturing industry, where regular overtime is in abundance. The decision applies only to overtime that the employer can insist the employee performs. It does not extend to purely voluntary overtime where the work may be offered but the worker can choose whether or not to work it.

Where overtime is commonly worked, it is advisable for employers to think about how this new ruling will affect their wage bill and whether they should be considering alternatives to regular overtime working.

An appeal is likely to be made to the European Court of Justice but experts do not expect any major back peddling.