Holiday pay ruling – workers could be owed thousands in compensation

Employers who have failed to update the way they calculate holiday pay could face compensation claims for underpayment following a landmark ruling by the Supreme Court.

The judgment will make it easier for workers to challenge underpayment in their wages even when there has been a long gap since the last time it happened.

The bill could be a hefty one for those employers who haven’t calculated holiday pay to include regular allowances, overtime and commissions, in response to various European Court of Justice decisions.

What happened in this important holiday pay case?

In 2018, an employment tribunal ruled that unlawful deductions had been taken from the holiday pay of 3,700 police officers and civilian staff by the Police Service of Northern Ireland (PSNI) over a 20-year period.

The staff members said their holiday pay was only equivalent to their basic pay without any reference to the overtime they regularly worked and that this was unfair.

Whilst the PSNI accepted that the underpayments happened, it contested how far back the holiday pay claims could go and specifically, whether the underpayments were broken by a gap of more than three months in the series of deductions.

The Supreme Court dismissed the PSNI’s appeal. This means it faces paying £40 million in holiday pay to staff.

What are the legal implications of the Supreme Court’s holiday pay ruling?

Before the ruling, workers automatically lost the right to claim for a series of underpayments in holiday pay when there was a gap of more than three months between the underpayments or if there had been a correct payment.

The Supreme Court’s decision means that the net can now be cast back further than three months with workers able to claim holiday pay going back over two years in Great Britain (on claims brought on or after 1 July 2015).

What should employers do now?

Employers who haven’t changed their holiday pay calculations to ensure they reflect a worker’s normal pay – in line with European case law – will be most affected by the ruling.

However, this remains a complex area of employment law, with different rules for different types of leave in relation to pay rates.

What it does highlight is the importance of calculating holiday pay correctly and knowing what elements of pay need to be included for each worker.

• Please contact our specialist Employment Team for more information.

What should employees do now?

If you think you have been underpaid holiday pay, or any of your wages, you may be able to make a claim to an employment tribunal.

Please contact our specialist Employment Team to find out what your next steps are.

Get in touch

Wards Solicitors is recommended as a South West leading firm in the independent Legal 500 list for 2024 having received overwhelmingly positive testimonials from clients.

Please contact our high experienced and specialist Employment Team for help, guidance or advice.