Holiday Pay update

Further to our previous article about the changes to Holiday Pay regulations, here’s an update:

On 8 January 2015, the government introduced the Deduction from Wages (Limitation) Regulations 2014, capping liability for holiday pay shortfalls that have unknowingly accrued over the years due to the exclusion of overtime from holiday pay calculations. This followed as a result of the ruling in the Employment Appeal Tribunal case of Bear Scotland Ltd v Fulton and other cases (full ruling (PDF))

Are all forms of overtime covered?

Must be overtime that is worked ‘sufficiently regularly’ – What is meant by this is still unclear. However, it is clear that it must be an employee who works beyond their core hours consistently rather than just the odd extra hour here and there.
Voluntary overtime – Still unclear whether or not this would be excluded from holiday pay but it seems likely that voluntary overtime would be worked less frequently and would probably not fall within the meaning of ‘sufficiently regular’ overtime.
How is it calculated?

Under the Working Time Regulations 1998– the reference period for calculating pay for workers with no normal working hours is 12 weeks
Lock v British Gas Trading Limited C-539/12 the European court held that it was for the national courts to work out what reference period is appropriate to achieve a ‘representative’ average suggesting that a 12 month period might be more appropriate.
Risk of back pay claims?

There have been concerns that underpaid holiday could be back dated to as far as 1998 when the Working Time Regulations were introduced but the case of Bear ruled that these claims would not succeed if there was a gap of 3 months or more between underpayments.
Points for employers to consider?

Do any part of your workforce do overtime? Is so, what type of overtime? Regular or ad hoc?
What are the cost implications on your business by including the additional payments in the statutory four-week holiday moving forward?
What reference period will you use that is most representative to produce an average and will your payroll systems allow for this change?
Employers may want to consider the above points with their in-house legal teams or speak to Milners Solicitors for advice.

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