Following a judgement from the Employment Appeals Tribunal (EAT) on the correct calculation of holiday pay, employers should be urgently reviewing their holiday pay entitlement.

Employment law and health & safety specialist Law At Work’s director of legal services, Donald MacKinnon, said: “With today’s decision going in favour of the employees, it means that employers will have to change their method of paying workers for their holidays. At present, holidays are generally based on basic pay i.e. not including commission, overtime or allowance. “Today’s judgement rules that these payments should be included in holiday pay and this will have a significant impact on every business.” Donald added: “It is estimated that one in six employees works regular paid overtime. This will mean that employers will have now to include these payments when calculating holidays and will be also liable for any historic underpayments which could amount to substantial amounts of money for many employers. The Government is urgently looking at this and may seek to limit employers' liability for back pay, but as the law now stands, employees can seek these repayments.”

The European Court of Justice had ruled that employers should take into account commission, and potentially bonus payments and overtime, when calculating holiday pay, rather than just basic pay following a test case between British Gas and one of its salesmen backed by Unison. Workers will now be able to claim for owed holiday pay dating as far back as 1998 under the Working Time Directive. The union Unite, which has a membership of 1.4 million, is preparing to help their members launch claims against employersto claim for holiday pay owed potentially as far back as 1998, and this new judgement means that more employers could face back-dated claims.Donald concludes that employers need to take this new judgement seriously. He said: “The case could lead to a flood of claims that would see employers hit with huge bills, potentially leading to some bankruptcies in the UK. Theruling also sets a precedent that could see other allowances for unsociable hours included in holiday pay calculations.”