Government acts to reduce holiday pay claim costs

The government has taken action to reduce the potential cost of holiday pay claims for employers.

Holiday pay

Last month, the Employment Appeal Tribunal (EAT) ruled that holiday pay should reflect non-guaranteed overtime.

The government has recognised that the EAT’s decision requires organisations to have protection against the potential impact of large backdated claims. As a result, changes made to regulations under the Employment Rights Act 1996 will mean that claims made to employment tribunals on this issue cannot stretch back more than two years.

Staff can still make claims under the existing arrangements for the next six months, which will act as a transition period before the new rules come into force.

The changes will apply to claims made on or after 1 July 2015.

Rachel Farr, professional support lawyer at law firm Taylor Wessing, said: “This is a massive, unexpected cost for employers, but the government has given a very pragmatic decison tp reduce the burden on them.

”This decision will also make employers consider how their pay structure is currently constructed, which can be extremely complicated.”

“It’s true that the question of how far claims could go back was left open by the Bear Scotland case, so this does provide certainty to the minority of employees who can show an unbroken chain of underpaid holiday. But that certainty will be of more benefit to their employers who now know the limit of their liability for historic claims.

“I suspect that those who think they might be able to show a series of deductions going back further than two years, or those who think that another case will revisit the decision that a series of deductions is broken if there is more than three months between two underpayments, will be rushing to bring their claims before 1 July 2015.”