On 8 January 2015, The Deduction from Wages (Limitation) Regulations 2014 will come into force.
These regulations establish, from 1 July 2015, a two-year limitation on how far back in time workers’ employment tribunal claims can go to recover the shortfall in holiday pay where non-guaranteed overtime and commission are not included in the calculation.
On 22 May 2014, in the case of Lock v British Gas, the European Court of Justice held that a worker’s commission should be included in the calculation of statutory holiday pay. On 4 November 2014, in Bear Scotland v Fulton, the Employment Appeal Tribunal held that a worker’s non-guaranteed overtime (i.e. overtime that an employer is not obliged to offer, but when it does, a worker must accept it) should be included in the calculation of statutory holiday pay.
The effect of these decisions meant that employers who had previously complied with the law relating to holiday pay in good faith, now found themselves potentially exposed to backdated statutory holiday pay claims brought as unlawful deduction of wages claims under the Employment Rights Act 1996 of us to six years of more, although Bear Scotland probably means that – until it is overturned – claims of this sort are limited where there is a gap of more than three months between holidays. Read our guide to holiday pay
The new legislation introduces a backstop of two years where claims are brought after 1 July 2015. Read the new regulations
Implications for Employers
Non-guaranteed overtime and commission should generally be included in the calculation holiday pay.
Where a worker has been paid correctly for a three-month period or more, any claim for arrears of holiday pay cannot go back in time before that period.