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Rebecca Peterson of Wansbroughs

Expert opinion: What does holiday pay ruling mean for employers?

Holiday pay must include ‘non-guaranteed’ overtime pay – what does the landmark decision in the case of Bear Scotland Ltd v Fulton mean for employers?

There has been a lot of coverage in the press recently over this decision in the Employment Appeal Tribunal that regular ‘non-guaranteed’ overtime should be included in the calculation of holiday pay.

Non-guaranteed overtime is where an employer is not required to offer any overtime to its employees, but where it does, employees are required to work it and will receive payment for it.

Historically, the requirement has been for employers to include only employees basic salary when calculating holiday pay. Therefore as a result of this ruling employers could be faced with claims from their employees for “a series of unlawful deductions of wages”, which could, in theory at least, date back to the start of their employment.

However, the EAT ruled that if there is a gap of more than three months between any alleged deductions, this gap will break the series of deductions, thus significantly limiting the financial exposure to employers. This will be welcome news, particularly as Unite has announced it is not appealing this ruling.

Further, the EAT’s ruling is limited to the 20 days holiday (for full-time workers) granted by EU law and not the additional eight days holiday granted by UK law. Thus, employers only need to include “non-guaranteed” overtime in the calculation of holiday pay for the first 20 days and not the full statutory minimum of 28 days holiday.

What should you do to protect your business?

Assess your future potential liability for holiday pay including “non-guaranteed” overtime pay – you may seek to reduce consistent and regular overtime where you can.

Amend your policies to reflect the EAT’s ruling – stipulate that the first 20 days of any holiday taken by your employees in any holiday year will be deemed to be holiday granted by EU law. This will allow you to rely on the additional 8 days holiday granted by UK law that your employees take to break the series of underpayments.

Assess your potential liability for historic underpayment of holiday pay claims – if there are no breaks in the series of deductions consider paying holiday pay in accordance with the current ruling. This will create a break in the series of underpayments and reduce your potential financial exposure.

Business Secretary, Vince Cable, has announced that he is setting up a taskforce to assess the impact of the EAT’s ruling on holiday pay. He said: “Government will review the judgment in detail as a matter of urgency. To properly understand the financial exposure employers face, we have set up a taskforce of representatives from government and business to discuss how we can limit the impact on business”.

Rebecca Peterson is an employment law specialist at Wansbroughs in Devizes. Contact her on 01380 733300 or at