Backdated Holiday Pay Claims Facing New Time Limit

By December 22, 2014Legal Update
Holiday Pay

Following last month’s landmark Employment Appeal Tribunal (EAT), the Government has announced that backdated holiday pay claims will be time limited from July 2015.

In November the EAT ruled that overtime, commission and other additional payments now need to be factored into employee holiday pay, which led to the Government setting up a task force to limit the potential impact of backdated claims. Working from the task force’s findings the Government published the Deduction from Wages (Limitation) Regulations 2014, which will come into effect on 1st July 2015.

Under the new regulations, employees will only be able to claim unlawful deductions for holiday taken in the two years immediately prior to the date of the claim. The regulations also confirm that the right to holiday cannot be incorporated as a term of the employment contract, which will prevent employees from being able to bring contractual claims into the civil courts

Employers and Employment Law specialists alike have been concerned about the financial impact of the initial EAT ruling, which meant that employees could potentially make claims reaching as far back as 1998. The two year limit imposed by the new regulations will see this impact significantly lessened, although it is worth noting that the time limit does not apply to any claims concerning SMP, SSP and guarantee payments.

With the holiday pay change in respect of overtime hours worked, many employment experts are still concerned that there will be an influx of holiday pay claims made before the new regulations are implemented next July.

Carol Ann Guilford, Director of Consultancy at HR Solutions said that: “There is a significant window of opportunity for employees to issue claims before the new regulations come into force. Therefore it would be wise for any company that makes payments beyond an employee’s basic salary to take action now regarding how their holiday payments are made, in order to limit the potential need to make backdated payment claims further down the road.”

As per the initial ruling, we recommend the following actions if you are an employee who makes additional payments above the basic salary:

  • Take stock of your current trading year to see how you may be affected
  • Consider the administrative burden of this and decide which form of contractual holiday entitlement you will pay
  • Ensure that correct pay-outs are made going forward
  • Set aside a reserve amount to cover both new and potential historical pay-outs
  • Factor the decision into pay reviews and new starter salaries
  • Review existing and new commission structures
  • Limit the amount of overtime offered if possible and consider alternatives (casual/part-time staff)

If you have any employment law concerns give us a call on 0844 324 5840 or contact us online to find out more about how we can help.

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