Holiday pay should include overtime, tribunal rules

Thousands of businesses are facing additional costs after a tribunal ruled that overtime should be included in holiday pay calculations.

The Employment Appeal Tribunal (EAT) ruled that employers must factor in overtime when calculating holiday pay, instead of only taking basic pay into account.

The tribunal also said that employees could make backdated claims if it has been less than 3 months since their last holiday.

Following the decision, the government announced that it had set up a taskforce to examine the potential impact on businesses. Business Secretary Vince Cable said the government would “review the judgment in detail as a matter of urgency”.

Business community reaction

John Cridland, director general of the Confederation of British Industry, warned that the ruling could result in job losses:

“This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds – and not all will survive.”

Adam Marshall, at the British Chambers of Commerce, said that backdated claims could pose the biggest problem for businesses:

“What businesses fear most is that these judgments will open the door to backdated claims, which could run into many millions. Firms which have complied with existing regulations are shocked by the thought of having to back-pay holiday entitlements – a change they could not have predicted.”