The decision in three construction industry cases this week has changed the way in which all employers should calculate holiday pay for their workers. In Bear Scotland & others v Fulton & others (heard jointly with cases against Hertel (UK) Ltd and Amec Group Ltd), the Employment Appeals Tribunal (EAT) had to decide whether overtime pay and travel allowances should be included when calculating a week's normal pay for holiday pay purposes.

In summary, the EAT has held:

  • Non-guaranteed overtime, in addition to guaranteed overtime, worked should be included in workers' "normal remuneration" when calculating their minimum four weeks' statutory holiday each year. The case is silent on truly voluntary overtime, but it may be safest (and easiest, for calculation purposes) to assume all overtime should be included
  • Travel and other taxable allowances paid to workers should be included in holiday pay as they also form part of normal remuneration
  • Claims for past underpayments of holiday pay have to be made within three months of the last deduction from wages
  • Longer breaks will be time-barred

What effect will this have on employers' obligations, and what should employers do now?

This is unlikely to be the end of the story: the limit on back claims is particularly controversial and the EAT has granted permission to appeal to the Court of Appeal on all aspects of the decision. Until any appeal is decided, the costs of the decision will remain unclear. Recognising the impact of the ruling and concerned about the cost to business, the Government has announced a new task force to assess its impact. In the meantime, any employer who does not already include overtime and taxable allowances when determining holiday pay should do so.