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New Ruling Means Employers Must Include Overtime in Holiday Pay

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A landmark ruling by the Employment Appeal Tribunal has widespread financial implications for all companies paying overtime to their staff.

The appeal tribunal has ruled that employers must take into account all overtime, and not just basic pay, when calculating employees' holiday pay.

Employers will need to review their working practices and consider whether overtime is compulsory when offered. They may also need to alter their contracts of employment.

Key issues resulting from the ruling include:

  • Workers will be entitled to holiday pay which reflects compulsory - as well as guaranteed - overtime. (However, this will only apply to the basic 4 weeks' leave granted under the Working Time Directive)
  • Staff can make backdated claims, but only if it is less than three months since their last payment of holiday pay.

Employers are advised to work out how holiday pay needs to be adjusted in the current year, and for the future, as the ruling means that calculations under the Working Time Regulations are likely to be complex.

Although it is expected that the ruling will be challenged through the Court of Appeal, we strongly recommend that employers seek expert advice now in order to manage both future and backdated claims.

If you would like to discuss how this new ruling will affect your business, please contact Barry Warne on 0114 252 1437 or email him at

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