A recent Supreme Court judgment means employees in Scotland, England and Wales can now look to recover unpaid holiday pay stretching back two years.
And in Northern Ireland, there’s no time limit.
This decision in the Police Service of Northern Ireland (PSNI) v Agnew case didn’t come as much of a surprise, but it is a significant change: previously claims were limited to any gap of more than three months between underpayments.
This means employers would be wise to double check their holiday pay calculations.
PSNI V AGNEW DECISION
Since 2014, we have known that holiday pay calculations in Scotland ought to have — typically — been based on an employee’s normal weekly wage.
This includes not just the basic salary, but also any regular overtime and commission, as well as any other payments they’d customarily receive.
Previously, a major limitation was a ruling that employees were only entitled to claim for unpaid holiday pay to the point where there were no deductions for three months or more.
The Supreme Court has reversed this. And while the case, which is estimated to cost the PSNI around £30million (as the court reported), relates to Northern Irish legislation, there are implications for the rest of the UK too.
HISTORIC EMPLOYMENT APPEAL TRIBUNAL BACKGROUND AND THE SUPREME COURT
In late 2014, the Bear Scotland v Fulton employment appeal tribunal ruled employees were entitled to normal rather than just basic pay when taking holidays (thanks to European court rulings).
However, there were strict time limits for raising such claims. In this case, the tribunal threw a bone to employers by ruling that any series of deductions was broken where there was a gap of three months or more with no underpayment.
The legal justification has been heavily questioned, with received wisdom being that it would simply be a question of time until the position was reversed.
The Supreme Court has now done so unequivocally: ruling that what amounts to a series of deductions will depend on the nature and reason for them.
In the PSNI case, the court held the method of calculation of holiday pay (based on basic pay only) linked the deductions consistently since 23 November 1998, which was when the relevant holiday legislation came into force in Northern Ireland.
Effectively, any correct payment during that time didn’t mean employees couldn’t claim for earlier underpayments.
It’ll be interesting to see how the two-year limit stands up if it’s tested in the future (there are rumblings of it being susceptible to challenge); meanwhile, for now, holiday pay claims are likely to be worth more than before.
As such, employers should check their holiday pay calculations are lawful. And sooner rather than later.