Historically, many employers have paid workers holiday pay on 'basic pay' only excluding non-guaranteed overtime payments. That is overtime payments that workers are not guaranteed, but if requested must work. In the case of AMEC v Law and related appeals the EAT has ruled that where the Working Time Directive requires employees to be paid 'normal remuneration' as holiday pay, this means 'typical average pay' rather than 'basic pay'. This means that workers who work non-guaranteed overtime can now have that factored into the calculation of their holiday pay.
This ruling gives many workers the opportunity of bringing claims against their employer for unlawful deduction of wages. However, importantly the EAT has limited how far back such claims can be made. If there has been a gap of more than three months in successive underpayments the Employment Tribunal will not be able to hear the earlier claims because there has been a break in the 'series of deductions'. Also, workers cannot retrospectively decide whether or not part of the holiday that they have taken was part of their four week minimum EU entitlement to enable them to close the 3 month gap.
The EAT's decision or parts of it may be appealed to the Court of Appeal and for that reason, pending further developments, employers may choose to maintain existing arrangements on calculating holiday at present, but factor in that there is a risk of workers making backdated claims for unlawful deduction of wages.
A copy of the judgement can be found here
The above is not legal advice; it is intended to provide information of general interest about current employment law.