Are employees and workers entitled to overtime pay when on holiday?


Author: Mike Tremeer


An important judgment was issued yesterday by the Employment Appeal Tribunal (EAT) which could have significant financial consequences for any business that offers paid overtime or makes other regular payments to its workforce.

Previously, the practice operated by most employers has been not to include overtime pay, commission, travel allowances and other “non-basic salary” payments when calculating the pay that workers receive when on holiday, even if they receive those payments regularly when they are at work. However, after a number of challenges were made to this approach by employees and workers (with trade union support), that position has now been confirmed as unlawful.

The EAT delivered its verdict in the case of Fulton and others v Bear Scotland Ltd and others on 4 November 2014 and it confirms that holiday pay must include overtime and other payments that form part of a worker’s “normal remuneration”. Exactly what payments constitute “normal remuneration” for this purpose will be a question of fact and will vary from case to case, but it is clear that many businesses will suffer increased costs for holiday taken in the future as a result of the decision.

What may have been of greater concern were the initial reports which suggested that workers would be entitled to claim backdated and underpaid holiday pay, possibly as far back as 1998 when the UK Working Time Regulations were introduced. The EAT’s view is that any period of more than three months between underpayments would break the chain of liability and so limit any historic claim. The Government estimates that around 16% of the 30 million UK working population are entitled to paid overtime, so this initial view does offer some comfort to employers.

Given the financial stakes involved for both sides, it is inevitable that the decision will be appealed and permission has already been granted for this. The Business Secretary, Vince Cable, has also announced that he is “setting up a taskforce to assess the possible impact of the ruling”. It is therefore unlikely that the EAT’s decision will be the final say on this matter.

However, this will not prevent the possibility of opportunistic disputes and claims being made by workers now in respect of historic underpayments, whilst the law is on their side.

If your business offers paid overtime or other regular payments to workers, or if you have any other queries regarding this important case, please contact Mike Tremeer on 020 3036 7364 to discuss further.

Mike Tremeer, Senior Associate, Fladgate LLP (mtremeer@fladgate.com)

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