Judgement day for holiday pay

Many UK workers may be entitled to thousands of pounds in miscalculated holiday pay

Following a judgement by the Supreme Court on 4 October 2023, holiday pay is back in the spotlight – with serious implications for businesses that have miscalculated it.

There are strict time limits for making a claim to an employment tribunal. If an employer has miscalculated holiday pay and made even one wrong deduction from wages, the employee has three months minus a day from the date of the deduction to make a claim to an employment tribunal and recover this amount. However, if it’s an ongoing miscalculation – where several deductions have been made in a row – the employee has three months minus one day from the date of the most recent deduction.

In Chief Constable of the Police Service of Northern Ireland v Agnew, the court decided that a three-month-or-more interval between underpayments of holiday pay did not automatically prevent it amounting to a chain of deductions.

Whether a claim featuring two or more deductions constitutes a series of deductions is essentially a question of fact, so in answering that question, all relevant circumstances must be taken into account, including: details of the deductions in issue; their similarities and differences; their frequency, size and impact; how they came to be made and applied; what links them together; and all other relevant circumstances. As a result, thousands of police staff in Northern Ireland could now reclaim up to 35 years’ worth of miscalculated holiday pay.

This case comes after it was decided in Harpur Trust vs Brazel that staff only working term-time hours would be entitled to the full entitlement of 5.6 weeks’ annual leave.

The situation came about due to a years long assumption that it was adequate to pay police staff the basic wage for the duration of a holiday-related absence. However, according to European case law, staff should have still been paid their ‘normal’ pay while on holiday. As many of the officers had received additional pay for working mandatory overtime, their ‘normal’ pay throughout holiday leave should have allowed for that overtime pay.

The best approach is to gain an understanding of the extent of any problem and get ahead of it.

The Supreme Court ruling could result in a significant financial burden, becoming a logistical nightmare for employers as they attempt to calculate and distribute payments to current and former employees. It’s not enough to simply look at payslips: certain factors – such as whether an employee was entitled to bank holidays or the number of annual leave days they’d accrued – can complicate matters further.

Employers should take time to review and evaluate how they calculate holiday pay before they're hit with back-claims for underpayment. Such claims in the UK could go back as far as two years and, in Northern Ireland, back to 1998.

Where employers have not been paying ‘normal’ pay or are otherwise off the mark – for example, incorrectly calculating the number of weeks holiday an employee is due – the next step is to calculate the potential liability and determine an action plan.

Holiday pay is a complex area of employment law and has been subject to repeated changes, and it’s expected that there will be further changes, with the government entering consultations on the matter.

All Alliance members can contact the team at Law-Call for legal advice about staff pay and holiday entitlement. You can find their contact details in the members’ area of our website at portal.eyalliance.org.uk.