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Holiday Pay Calculation: what the new ruling means for you

Published 12 January 2015

Happy memories of the sun, sea and sand have faded by the time next pay packet arrives like a damp squib following a sunshine break.

Basic pay has been used to calculate holiday pay, which left many workers paid overtime, shift payments or commission feeling slightly out of pocket after taking annual leave.

However in November 2014, in a landmark judgment, the Employment Appeals Tribunal ruled that overtime should be factored into holiday pay.

The ruling has left employers fearing a big bill for backdated claims for underpayment, although the time allowed for submitting such a claim has been limited.

Employees cannot claim underpayments if a period of three months or more has elapsed since the leave had been taken.

The government recently implemented changes to the employment regulations in order to place a cap on the amount that can be claimed. Any claims made from 1 July, 2015, cannot stretch back more than two years.

The ruling is likely to lead to a drastic change in the way employers and workers now calculate holiday pay.

Key points which will have to be considered when calculating holiday pay include guaranteed and non-guaranteed overtime, commission and work-related travel.

Business leaders have attacked the ruling while trade unions have welcomed it.

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