In November, the Employment Appeal Tribunal rules that holiday pay should be calculated based on an employee’s actual earnings, including overtime, rather than on their basic pay.
For some employers, the change to the rules may mean an increase of around 3% in average wage bills, and clearly this may have implications for the profitability of businesses, particularly smaller businesses.
FDC Law’s Employment Law specialist, Ben Whelan, explains “Underpayment of holiday pay may amount to an unlawful deduction from wages and as such, may allow an employee to make a claim to an Employment Tribunal. Currently, employees must make a claim within 3 months of the most recent deduction, however, once made, such a claim could also include older holiday periods”
The government has proposed legislation to limit the length of time for which claims can be back dated to a maximum of two years, and to make clear that claims can only be brought in an Employment Tribunal, not in the County Court (where claims can be made for up to 6 years after the alleged wrongful deduction) however, this could still involve significant payments for some employers. In addition, the new rules will not come into effect until July of this year, and claims brought before that date may still involve deductions going back more than 2 years.
It is therefore essential that all employees, and in particular those whose employees often work overtime, or whose hours vary, take specialist advice to ensure that all holiday pay is calculated and paid correctly. This should be done sooner rather than later, as each time a employee is paid an incorrect amount of holiday pay, the time limit to bring a claim restarts.
If you are an employer and would like advice about your obligations in relation to holiday pay, or if you are a worker and believe that you may be entitled to back-pay, please contact Ben Whelan for detailed advice about your position.