Holiday pay to alter or to leave

Informed comment is divided on whether to alter holiday pay calculations in the light of a decision taken in November last year. In principle it means that employees are entitled to have overtime (and other earnings) taken into account when calculating the rate of holiday pay.

In many ways this is manageable, it is a foreseeable cost and can be taken into account when deciding whether or not to have employees work overtime. What is much less manageable is the risk of back pay. Where overtime payments have been made in the past, and not allowed for in  holiday pay, employees may be entitled to back pay. The CBI has already warned that this could destroy many businesses and John Lewis, for example, have just promised to pay out £12M to back pay holiday to 1st November 2014. Whether back pay can be limited to that date remains to be seen.

A Government task force recently suggested claims should be limited to two years – that is considerably further back than November 2014 but at least not as far back as October 1998 – when statutory holiday pay first came in.

What to do?

Writing  for People Management, Nicola Briggs of global law firm Dentons, suggests: “If employers try to alter holiday pay arrangements now, this will provide a break in the chain and limit their liability for back payments. However, in some cases it may be worth not highlighting the issue until after 1 July 2015 when the two year time limit takes effect.”

There may indeed be a case for keeping quiet, many people cannot quite believe the change is true. One option would be to quietly start  taking regular overtime (and other regular payments) into account in calculating holiday pay – complying with the change in the law.  But making the change highlights it. Nonetheless, back pay may be something that can be countered later but, which ever way you look at it, back pay to November 2014 would be hard to fight. It is worth remembering PPI where a change in interpretation of the law cost many firms dear and spawned a whole new industry for pursuing claims.

Take action now and you could be hung! But then you could be hung if you don’t!

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