You may have seen some of the reports from Tuesday’s ruling from the Employment Appeal Tribunal (EAT)  around the fact that employers need to consider overtime when calculating holiday pay so we wanted to set out the facts, some advice and let you know how Sage Payroll software can help you to manage this.

6 things you need to know to take care of the holiday pay and overtime ruling


1.     The ruling from this week’s Employment Appeal Tribunal means that all elements of an employee’s “normal remuneration” – including payments for non-guaranteed overtime should now be taken into account when calculating holiday pay

2.     Overtime and commission earned by your employees only has to be included when calculating holiday pay for the basic four week statutory holiday entitlement under the Working Time Directive

3.     Employers do not have to include overtime when paying holiday pay for the additional 1.6 week’s holiday provided by the Working Time Regulations or for any additional contractual holiday entitlement over and above the basic statutory four week entitlement

4.     The Judge said that ‘normal pay’ is simply pay that is normally received by the worker for a sufficient period of time.

5.     Employees may appeal for backdated holiday pay claims but will not be able to if there has been a gap of more than three months since they received their holiday pay.

6.     If you do not to include overtime and commission payments when calculating holiday pay going forward, an employee may make a claim to the employment tribunal for unpaid holiday pay, but they will not be able to claim if there has been a gap of more than three months since the holiday.

Our advice for employers

We would advise you to prepare for this new ruling straight away to ensure your business and employees are covered. This means starting to include overtime and commission in your holiday calculations with immediate effect.

  • Sage Payroll is legislatively compliant and already has the facility to allow users to manage holiday pay in line with this ruling.
  • All Payroll Sage Cover customers have access to HR advice services that can guide them on the specifics of this ruling. All non-Payroll Sage Cover customers can get access to this service by adding an HR Advice subscription to their current Sage Cover contract.