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Over-time included in holiday pay calculations capped at two years

21 July 2015


Over-time included in holiday pay calculations capped at two years.

From 1 July 2015 workers who bring an unpaid wages claim for holiday pay will only be entitled to claim for up to two years’ worth of backdated pay.

Previously, a worker’s overtime only qualified as part of a week’s pay where the overtime was compulsory and guaranteed.

In November 2014, in three joint cases at the Employment Appeal Tribunal (EAT), Bear Scotland v Fulton (1) Hertel v Woods (2) Amec Group  v Law (3), held that  workers who worked non-guaranteed compulsory overtime, must have their overtime considered when calculating holiday pay. This was limited to the Working Time Directive of four weeks’ pay; not for the additional 1.6 weeks provided for under UK law.

The EAT’s decision meant that workers could claim unlawful deductions from wages for overtime to be included in the calculation for holiday pay provided that the claim is made within the requisite three month time frame. The EAT also held that a break of more than three months in any series of deductions will prevent a claim in relation to earlier deductions.

Following on from this decision, the Government set up a task force to assess the impact of the EAT’s decision and possible limitations that could be implemented on backdated pay. On 8 January 2015 the Deduction from Wages (Limitation) Regulations 2014 was introduced and provided measures to prevent a worker from claiming more than 2 years’ worth of backdated holiday pay.

Whilst the Regulations appeared to provide clarity on the time limits for backdated holiday pay claims, news of the decision by the Northern Ireland Court of Appeal in Patterson v Castlereagh Borough Council has brought fresh concerns to employers. In this case, the Court held that there was “nothing in principle” to prevent a worker from including voluntary overtime as part of a holiday pay calculation. Whilst this case is not legally binding in England, Scotland and Wales, its influence could raise new concerns for employers regarding their obligations to include voluntary overtime when calculating holiday pay.

With that in mind, it would be prudent for employers to seek advice on their individual risk and circumstances prior to making any changes to current holiday pay practices. If employers decide to do nothing, they risk exposure to possible claims.

Entitlement to accrued untaken holiday whilst on sickness absence capped at 18 months 

New provisions now state that annual leave accrued, but untaken, during a period of sickness absence cannot be carried forward indefinitely and that it may be limited to an 18 month carry forward limit from the end of the holiday leave year. To avoid losing out on untaken holiday employers should remind their employees of their entitlement to take annual leave during periods of sickness absence.


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