General Working Rules

From 1st July 2015 new regulations will come into force to prevent claims for arrears of holiday pay going back more than 2 years. This limit has been put in place to protect companies from the burden of substantial backdated claims.

The Lock v British Gas decision established that it is now a legal requirement to include commission in holiday pay calculations by reference to the worker’s average pay and commission over a reference period, the intention being to ensure that workers are not financially disadvantaged when taking annual leave. Commission only has to be included when calculating the basic four week statutory holiday entitlement conferred by European law, not the additional 1.6 week entitlement applicable in the UK. Prior to these new regulations, employers were potentially exposed to claims for underpayments of holiday pay that could be backdated as far back as 1998 when the Working Time Regulations first came into force.

However, the new regulations mean that, from the 1st July 2015, employees will only be able to claim arrears of underpaid holiday pay from the previous two years.

The regulations will be helpful for businesses in terms of placing a limit on the back-dating of claims which may assist employers in calculating how much they could be potentially liable for.

Gillian McAteer of the Employment Law Team at Citation says:

“The Government’s prompt response is welcomed in order to offer employers some protection by placing a limit on how far back holiday pay claims can go. There are still important questions to be answered going forward, such as exactly how employers should distinguish between the European 4 week entitlement and the UK’s additional 1.6 weeks for the purposes of establishing whether there has been a 3 month break in underpayments . This is important as such a break would prevent employees from pursuing claims for underpayments made prior to the break, regardless of the fact that they were made within the last 2 years.”