The employment appeal tribunal (EAT) has ruled that employers must include overtime when calculating holiday pay.

In a recent ruling of three cases, the tribunal rejected employers’ appeals against previous rulings that they should pay employees holiday pay that reflected their overtime earnings. It also ruled that employees could backdate their holiday pay claims, but only up to three months beyond the miscalculation.  

However small business groups have criticised the ruling, saying that it will be detrimental to businesses and employment levels. Chairman of the Federation of Small Business John Allan said, “Today’s ruling leaves many questions unanswered. It has the potential to be very damaging to small businesses, presenting a real risk of small firms being forced to close down if faced by retrospective claims.”

The ruling could be referred to the Court of Appeal, which would delay a final decision on the issue.

The EAT ruling follows a similar judgment by the European Court of Justice in May, which ruled that holiday pay should take into account commission earnings as well as basic salary.