December 2 2014.

A recent tribunal case has created confusion over whether holiday pay should take into account overtime as well as normal working hours.

Following the Employment Appeal Tribunal's (EAT) decision in the holiday pay case of Bear Scotland Ltd v Fulton & another, the newspaper reports were full of sensationalist terms like "timebomb", "floodgates" and "ruin of small business”. But what will be the real impact of the decision, and to what extent do businesses need to change their existing arrangements?

Calculating correct annual leave payments has been a particularly important consideration since  the introduction of the right to paid annual leave in the Working Time Regulations 1998 (WTR), which sought to implement the European Union's Working Time Directive into UK law. Under the WTR, a week's pay for the purposes of calculating the amount of holiday pay is based on an employee's normal working hours – their basic pay, in other words, with non-guaranteed overtime hours being ignored.

That view changed with the European Court of Justice's decision in a British Airways case, resulting in considerable concern over backdated holiday pay claims for employers ….

Look out for the December 2014 issue of Motorcycle Trader – landing this week - to find out more on this challenging subject.