As we know, employers have a legal obligation to ensure that employees receive the correct holiday pay entitlements. However, historical underpayments can occur due to various reasons, posing challenges for businesses. In this article we discuss the recent shock holiday pay ruling case. Plus, we will look at how employers can avoid claims for historic underpayments of holiday pay while upholding legal standards and preventing costly disputes.
The Supreme Court has issued a significant judgment on holiday pay in the case of Chief Constable of the Police Service of Northern Ireland v Agnew. The Court has held that police officers and other employees of the Police Service of Northern Ireland are entitled to bring a claim for a series of underpaid holiday entitlement. Their holiday pay did not include overtime and certain allowances.
Usually, if an employee’s holiday pay is incorrect, they must bring a claim forward within three months of when the deduction was made. Or, if a string of underpayments has been made, it must be within three months of the last time they were underpaid for their holiday. The Supreme Court held that the gap of three months between underpayments of holiday pay does not automatically break the chain of a series of deductions if it was calculated with reference to basic pay.
The court emphasised the inclusion of variable elements such as overtime, commissions, and bonuses in the calculation of holiday pay. This means that employees are entitled to a more comprehensive holiday pay package, including these variable components and not just basic pay. The ruling also has further implications as it means that the “three-month gap” rule cannot be used by employers in claims about any kind of underpayment (not just holiday pay). As a result, workers can make claims for historic deductions no matter how far apart, as long as there’s some common fault.
In Great Britain, the Deduction from Wages Regulations 2014 imposes a two-year limit on unlawful deductions claims brought after 1 July 2015. These regulations were not introduced in Northern Ireland, but they remain in place in Great Britain, limiting employer exposure to back pay claims. This case has potentially extremely significant ramifications for employers in Northern Ireland due to there being no equivalent to the 2014 Regulations. Therefore, the impact on employers in Northern Ireland is likely to be much greater compared to employers in Great Britain. This is because holiday pay liability could potentially date back to 1998 when the Working Time Regulations were introduced, or back to the date on which employees commenced employment, depending on which is later.
The ruling provides clearer guidelines for employers, ensuring that they understand their obligations concerning holiday pay. Employers must now meticulously calculate holiday pay, incorporating all relevant elements to avoid legal ramifications.
For employers, this judgment signifies a need for a thorough review of their existing holiday pay policies. Ensuring compliance with the new standards is essential to prevent legal challenges and potential financial repercussions.
If employers have been paying basic pay only, they should now carry out a holiday pay audit to help measure any financial risk of claims as well as calculate the potential liability and determine what action to take. Employers should now review their approach to how holiday pay is calculated to ensure the calculation of holiday pay takes account of all aspects of normal pay such as overtime, bonus, and commission.
Our team of expert HR Consultants can provide support with carrying out a holiday pay audit to help ensure you do not run the risk of future claims.
To find out more information or if you require any advice on holiday pay get in contact with our team of experts.
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