New Holiday Pay Ruling

Hitting the headlines this month is the result of 3 Employment Appeals Tribunals (EAT) regarding the calculation of holiday pay. The workers won and the employers lost and the ruling means that where you require staff to work overtime, you must now include the overtime pay in the holiday pay calculation for the first 4 weeks of annual holiday pay. Where the overtime pay varies, the holiday pay calculation must be based on the average of their last 12 weeks pay.

A major concern for employers is that the EAT also rules that employees can claim that the employer has made an unlawful deduction of wages under The Employment Rights Act if their holiday pay does not include overtime and other payments considered part of ‘normal remuneration’ such as commission and travel allowance, which in theory could go back as far as 1998, when the original Working Time Regulations were implemented in the UK. However, the EAT ruled that a claim for an unlawful deduction can only made if the claim is made within three months of the incorrect holiday pay amount being paid. So really, an employee has to bring a claim before an Employment Tribunal within 3 months of the unlawful deduction being made from wages.

If you have staff who you know will now be entitled to increased holiday pay, please be aware of possible backdated claims and ensure that your payroll provider or internal staff are aware of this issue to avoid underpayments being made going forward.

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