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Harold Stock & Co. Solicitors

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Employment

Holiday Pay: Could your business be at risk?

10th July 2019 by Harold Stock & Co

Looking out to a damp, dark Manchester morning it is hard to believe that we are now officially in holiday season! Managing leave for your staff is one thing, but have you also considered if you are paying workers correctly when they are on holiday?

The rights surrounding annual leave and holiday pay have been in a state of flux for some years.  This has led to a great deal of uncertainty for employers. In this article, we look at the recent decisions, how they affect holiday payments, and what you need to do to protect your business.

Recap: the law relating to holiday leave and pay

In brief, the right to annual leave and the associated pay is set out in the Working Time Directive, which derives from Europe.  The UK implemented the Directive into the Working Time Regulations 1998 (“WTR”) which provide employees and/or workers with 5.6 weeks entitlement per year, this translates to a basic minimum entitlement of 28 days.  There is no right to bank/public holidays but most employers usually incorporate these 8 days into the 28 day leave entitlement.  Part time workers are entitled to a pro rata equivalent.

Under the WTR the worker is entitled to be paid for the holidays taken using a formula as set out in the Employment Rights Act 1996.

Failure to properly calculate holiday pay could result in an unlawful deduction from wages claim from workers and/or employees.  Importantly, there is a mechanism which allows claims to be brought as a “series of deductions” which can link any underpayments throughout the working relationship. 

The time limit for bringing these claims is 3 months from the date of the last deduction (unless “unreasonably practicable” to do so).

Holiday pay – what to include?

The core principles from the European and national courts are that workers are entitled to be paid their normal pay during periods of annual leave, and that “normal pay” is not limited to basic pay but could include elements such as overtime, commission and allowances.

In 2014 the Employment Appeal Tribunal (EAT) heard the important case of Bear Scotland & Ors v Fulton & Ors (“Bear Scotland”) which decided that some types of overtime should be included in holiday pay.  The case also considered how far back a worker could go when claiming a ‘series of deductions’  

In this case workers tried to claim for underpaid holiday pay stretching back over a number of years.  However, the EAT decided that any period of 3 months or more between the deductions would break the series.   Given that most people have over a 3 month break between holidays, this case had the effect of preventing workers from claiming all the way back to the start of their employment (or 1998 when the WTR were introduced).

Following this decision, the government introduced legislation in 2015 to restrict any claim for underpaid holiday further by imposing a maximum 2 year backstop.

At this stage, a worker would only be able to claim for back paid holidays if they were not subject to a 3 month break, and if there was no break, then they could only go back for a 2 year period.  This significantly reduced the impact of the European cases and was welcomed by businesses.

Current position

Following the Bear Scotland case uncertainty still remained regarding the calculation of holiday pay and what constituted a ‘series’.   The case did not provide any guidance about how to calculate holiday pay where commission/bonuses and overtime are regularly paid to the worker; specifically, what period of time should be referenced to provide an average sum to be incorporated into holiday pay?  Should it be a 12 month or a 3 month reference period?

Questions were also raised about whether the ‘series’ could be broken by making a one off correct payment. 

Last month, the Northern Irish Court of Appeal provided a decision which puts the decision in Bear Scotland under the spotlight and is estimated to cost the Police Force £40 million in backdated holiday pay: The Chief Constable of the Police Service of Northern Ireland & Northern Ireland Policing Board -v- Alexander Agnew & Others. 

In summary, the court decided that police officers’ holiday pay should have included overtime and various allowances and these police officers were entitled to claim for this element of leave, with some claims dating back to 1998 (when the WTR came into force).   This puts the decision in Bear Scotland into question, as there is now doubt whether a period of 3 months or more can break the series of deductions, and therefore limit the period for the claims.  

Comment

The Agnew case is not binding on domestic courts, but this decision could be taken into account when faced with a claim for backdated holiday pay.  Further, given the significant sums involved in this case, it may be appealed to the Supreme Court.  If so, any decision made by the Supreme Court will be binding on all UK courts. 

Importantly, the court did not consider the two year cap on backdated holiday pay claims as provided for in the domestic regulations as they do not apply in Northern Ireland. These regulations are likely to be challenged in the near future as there is some concern that they are not compatible with the Working Time Directive.  

Tips for managing the risk

The is a dynamic and unsettled area of law, but it is now clear that companies must include the relevant allowances when calculating holiday pay.  Whilst some uncertainty remains, there are a number of things businesses can do in order to manage the risk of a future claim for underpaid holidays:

  1. Review your working arrangements – are there any ‘self employed’ contractors who could argue that they are ‘workers’ and entitled to back paid holiday;

  2. Perform an audit of anyone who could potentially be entitled to back pay and perform a calculation of what the financial sum this could look like;

  3. When performing calculations take into account commissions/bonuses/overtime if they are sufficiently regular and are “intrinsically linked” to the work;

  4. If a shortfall in holiday pay is established, act quickly to correct the calculations to ensure that future payments incorporate all relevant entitlements.

  5. Given the complexities in this area, if you have any queries, you should seek specialist advice.

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Chloe Leyland image

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Chloë Leyland has specialised in employment law since she qualified as a Solicitor in 2007. Chloë has significant experience in presenting and managing employment tribunal cases for both the private and public sector as well as individuals. Chloë’s main areas of expertise include the following: discrimination, redundancy exercises, unfair dismissal, whistleblowing, TUPE transfers and equal pay. 

Email: cle@haroldstock.com

Filed Under: Employment, News

4 Out Of Every 5 Claimants Are Deterred From Pursuing Employment Tribunal Claims Because Of Fees Claims Citizens Advice Poll.

14th January 2015 by Harold Stock & Co

The Employment Tribunal Fees system polarised opinion when it was introduced in July, 2013.

[Read more…] about 4 Out Of Every 5 Claimants Are Deterred From Pursuing Employment Tribunal Claims Because Of Fees Claims Citizens Advice Poll.

Filed Under: Employment Tagged With: employment, employment tribunal

Overtime Should Count In Holiday Pay Rules Employment Appeal Tribunal.

7th November 2014 by Harold Stock & Co

Under the current UK interpretation of the EU-wide Working Time Directive, in particular the Working Time Regulations implemented in the UK in 1998, only basic pay counts in the calculation of holiday pay.

[Read more…] about Overtime Should Count In Holiday Pay Rules Employment Appeal Tribunal.

Filed Under: Employment Tagged With: Employment Appeal Tribunal, working time directive

Social Media And The Workplace.

27th May 2014 by Harold Stock & Co

Rarely has the term ‘grey area’ been more appropriate than in the context of employment law and social media.

[Read more…] about Social Media And The Workplace.

Filed Under: Employment, Employment Law Tagged With: social media, social network

Employment Regulation: Times Are Changing.

1st May 2014 by Harold Stock & Co

Twice a year, the government introduces a range of regulation changes, with the most recent being 6th April 2014.

This month we’ve set out some of the notable changes effective from that date.

Tribunal penalties.

For the first time, financial penalties of 50% of the compensation payout will be introduced for employers who lose at tribunal.  Imposed at the Tribunal’s discretion, this will be subject to a penalty of minimum £100 and maximum £5,000.  Multiple successful claims from one individual will be treated as a single claim.

Early Conciliation.

Before lodging a claim to the Tribunal, all claimants will now need to notify ACAS where conciliation will be offered. If this is unsuccessful within the set period, the claimant can then lodge a tribunal claim.  Employers should consider allocating a particular member of staff as the key contact for such matters. Both parties will remain at liberty to decline participation in the early conciliation process.

Sick Pay Recovery.

Where previously employers were able to recover a percentage of statutory sick pay from HMRC if they had a relatively high level of sickness absence, this option has been removed. This could be of significant importance to smaller employers. However a new helpline advice service which will accompany a state-funded employee health scheme, is set to be introduced at the end of 2014, offering free occupational health assistance for employees, employers and GPs. One aspect of this service is the availability of an occupational health assessment after four weeks of sickness absence.

Immigration Fines to Rise.

The penalty for taking on an individual that does not have the right to work in the UK is now set to increase, with the current £10,000 limit set to be capped at £20,000 per employee.

Free, no-obligation initial consultation.

Whether you are an employer or employee and you are concerned about your situation, Harold Stock & Co Solicitors have over 35 years’ successful experience in matters of employment.  Contact us today for a free no-obligation initial consultation.

The author of this article was Tom Simpson; Solicitor at Harold Stock & Co Solicitors.

For further information contact:

Tom Simpson,

Telephone: 01457 836 152,

Email: ts@haroldstock.com.

Filed Under: Employment, Employment Law, News Tagged With: employment, employment regulation

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