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Holiday pay- after the dust has settled…

At the end of last year, the Employment Appeal Tribunal (EAT) issued a landmark judgment regarding holiday pay.



This was a major decision about whether overtime needs to be included in holiday pay. The case ruled that workers are entitled to ‘normal remuneration’ whilst on holiday, essentially ruling out paying basic hours only during holiday periods.

What are the implications?

The decision will lead to higher wage bills for employers. But the limitation on retrospective claims does appear to narrow that liability for back pay. This will relieve some concerns around payments going back numbers of years.

It still remains the case that future developments are anticipated, particularly in light of the government appointed task force seeking to review the current state of the law. There is a tension between EU and UK law, which is mostly due to the interplay between the 20 days minimum leave prescribed by the EU Directive and the 28 days minimum leave prescribed by the UK Regulations. The European authorities have been very clear that unless normal remuneration is paid to employees during annual leave then that may act as a barrier to holidays being taken. There may be legislative changes to remove the distinction between the ‘EU’ 20 days and ‘Domestic UK’ 28 days holiday but this is not anticipated before the general election.

What do retailers need to do…

  • Analyse payroll records to see if there might be a three month break in any series of deductions enabling the backdating of claims to be restricted.

  • Holiday pay ought to be paid at two different rates according to whether the employer is designating leave as being the first 20 days holiday (set as the EU minimum) or whether it is ‘additional’ leave amounting to the additional eight days holiday (set as the UK minimum).

  • Be aware that this is going to have payroll implications and create an administrative burden.

  • There is not yet any clarification on voluntary overtime. But on the basis that the case authority refers to ‘normal remuneration’ then employers should carefully look at all pay components and decide whether to include fluctuating components in holiday pay.

  • As the case law evolves some employers may alter their staffing arrangements to use agency staff or temporary staff to cover periods of peak workload.

Employers are advised to be pro-active in analysing payroll records and identifying potential liability so that steps can be taken to mitigate the risk of claims being raised.

For more information please contact Jonathan Rennie: 0333 006 0757 /

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