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Two-year limit for holiday pay claims

Feb 24, 2015
Following a decision by the Employment Appeal tribunal (EAT) last August which confirmed that the overtime payments and commissions should be considered to be part of an employee’s normal pay when calculating holiday pay entitlement, the UK government has swiftly introduced new legislation to protect employers.

The Deduction from Wages (Limitation) Regulations 2014, which came into force on 8th January 2015, provide that an employee may only claim up to two years of backdated “fee, bonus, commission, holiday pay or other emolument referable to his employment”.

The Regulations only affect claims made by employees on or after 1st July 2015. Other types of wages claims, for example, in relation to statutory sick pay, parental leave and guarantee payments are not affected by the Regulations. In addition, as a holiday pay claim arising from the Working Time Regulations 1998 cannot be treated as a contractual claim, employees are prevented from making a claim in the county court if they are already time barred in the employment tribunal.

These legislative changes anticipate legal challenges to the EAT’s judgement that an employee’s claim for a long period of back pay will fail if any ‘deduction’ (i.e. non-payment of full holiday) is separated by more than a three month gap. They also limit the impact of any future rulings that non-contractual overtime should count for the purposes of assessing holiday pay.

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