Holiday Pay – UK Government Introduces Two-Year Limit on Claims for Back Pay

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In Depth

The UK Government has introduced legislation to help employers deal with the fallout of recent decisions indicating that pay for statutory holiday should include, and should always have included, overtime and other job-related allowances, as we reported on previously here and here.

The legislation makes the following changes:

  • It limits the period for which workers can claim back certain unlawful deductions from wages, including holiday back pay, to the two years immediately preceding the date a claim is submitted to an Employment Tribunal. The new limit will apply to claims made on or after 1 July 2015.
  • It also provides that the fact that a worker has a statutory right to holiday pay does not mean that he or she also has a contractual right to it. This provision is intended to remove the possibility of employees circumventing the cap on back pay by bringing a breach of contract claim in the County or High Court reaching back six years.

The legislation comes into force on 8 January 2015.

What Does This Mean for Employers?

Any claims submitted before 1 July 2015 will not be subject to the two-year cap. The change might, therefore, prompt employees who believe they have been underpaid holiday over a number of years to lodge claims within the next six months.

In any event, following the finding in Bear Scotland that, in order to be covered by a single Tribunal claim, the occasions on which underpayment had been made had to fall within three months of each other and relate to the core 20-day statutory entitlement, it is unlikely that claims would be able to reach back two years. However, that finding in Bear Scotland is vulnerable to appeal, and this new legislation provides a fail-safe, at least for claims lodged on or after 1 July 2015.