A gap of 3 months will no longer automatically break the chain when calculating holiday back pay making it easier for employees to claim up to 2 years

Previous position

If there were no gaps between underpayments that exceeded 3 months, employees could claim for holiday pay underpayments up to a maximum period of 2 years. If there was a gap of 3 months or more, it was generally accepted that the chain had been broken and employees could not claim back further than the break.

Deksne v Ambitions Ltd

This position was recently reviewed by the Employment Appeal Tribunal (EAT) in the case of Deksne v Ambitions Ltd, which involved the Claimant bringing a claim in the Employment Tribunal for unlawful deductions from wages, specifically underpaid holiday pay. When the case was heard in the Employment Tribunal, the tribunal struck out the claim on the basis that it was out of time, as there were gaps of 3 months or more between some of the underpayments. The Employment Tribunal came to this decision following the established judgments in Bear Scotland v Fulton and Police Service of Northern Ireland v Agnew.

However, the Employment Appeals Tribunals overturned the Employment Tribunals decision in Deksne v Ambitions Ltd and found that the underpayments claimed were actually part of a series of underpayments and the circumstances of the deductions must be considered. These circumstances can be frequency, size, and cause of the deductions.

This illustrates that claims for underpayments caused by the same miscalculation can be treated as a series or chain, even if there are significant gaps between them and claims can still extend back for up to two years.

Reminder on holiday pay rules

Here is reminder of some of the rules around payment of holiday pay and how a week’s pay should be calculated:

• For regular hours or fixed pay workers, a week’s pay will be their normal rate of pay.?
• For shift workers with regular hours, a week’s pay will be the average number of weekly hours worked over the previous 52 weeks at their average hourly rate.
• For irregular hours and part year workers, a week’s pay will be the average pay received from the previous 52 weeks.
• ‘Normal’ rate of pay includes commission and regular overtime payments. It does not usually include bonus payments.
• Rolled up holiday pay of 12.07% can be used for irregular hours and part year workers, unless their leave year began on or before 31 March 2024.

What should an Employer do to protect against back dated holiday pay claims?

Given the recent case law, back pay for miscalculated holiday pay could now be significantly more than Employers have previously budgeted for.

Here are some steps that employers should take to evaluate their risk:

1.???? Review holiday pay calculations for the previous 2 years, taking into account the above rules and specifically ensuring that payments have taken in to account regular overtime and commission averaged over the previous 52 weeks.

2.???? Make enquiries with any outsourced payroll provider to ensure that they are aware of the rule change and have been calculating the company holiday pay correctly.

3.???? Consider settling any under payments of holiday before claims are brought to save on time, costs and reputational damage.

MD Law can provide you with the following assistance:

1.???? Full holiday pay record reviews and a risk assessment report on findings

2.???? Guidance on holiday pay calculations

3.???? Updated holiday entitlement and pay policies

4.???? Advice on holiday underpayment settlement options to fully protect the business

5.???? Ongoing HR support through our comprehensive fixed fee monthly packages

If you would like further information or a free consultation, please contact [email protected]