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Changes to overtime holiday pay

moneyLast week the Employment Appeal Tribunal (EAT) delivered a ruling that was met with both cheers of applause and groans of frustration in equal measure.

In what had become a landmark case, attracting huge attention from the media, unions, government and business groups alike, the tribunal finally settled a long standing contentious issue ‘Should an employee’s overtime, be factored into holiday pay entitlement?’. The conclusion they came to was a resounding yes.

What does this mean for the average employee?

Most UK workers won’t see much change to their holiday pay entitlement as a result of this ruling, but for the significant minority (around 5 million people) who regularly work overtime beyond their contractual obligations, the tribunal’s decision will bring their entitlement into line with the actual number of hours that they work, rather than their basic salary, as has been the case until now.

There has been a significant backlash at the decision, with business groups and the government warning that such changes will have near catastrophic effects, particularly for small businesses, who already struggle to meet their legal obligations when it comes to holiday pay.

But the move has been unsurprisingly welcomed by unions, who say that new legislation will no longer mean that, employees who regularly work overtime, find themselves comparatively out of pocket during periods of annual leave.

Prior to the tribunal’s ruling there was much speculation surrounding the issue of backdated pay, with suggestions that if it was decided employees were entitled to a holiday pay adjustment, that could mean businesses would be faced with enormous backdated claims (stretching as far back as 1998).

The fear was that if this happened employers would be legally obligated to pay up, or risk prosecution for breaching employment legislation.  But, there was some good news for employers, as the decision states that employees can only claim for previous pay, if it is less than three months since their last period of leave.

Is the issue done and dusted?Vince Cable

Not by a long shot! Whilst the tribunal’s ruling is, at this time, legally enforceable, the wheels of legislation grind slow and fine, with a challenge expected to be launched with the the court of appeal and the court of justice of the European Union.

It would be an understatement to say that the government is not happy with the decision.  Business secretary Vince Cable, for one, seems positively livid at the prospect, warning that the new holiday pay rules could result in significant job losses and untold damage to the economy.

Speaking after the ruling he said “The government will review the judgment in detail as a matter of urgency.  To properly understand the financial exposure that employers will face, we have set up a task force of representatives from government and business to discuss how we can limit the impact on business”.

At the heart of this question lies the issue of fairness. Is it right to expect employees to receive holiday pay which isn’t representative of the their average earnings?

I have a feeling we haven’t heard the end of this one yet.



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