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Are you calculating holiday pay correctly?

View profile for Shola Khan
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There has recently been an important case (Chief Constable of the Police Service of Northern Ireland v Agnew) in relation to holiday pay in the Supreme Court. 

The case is outlined below but shows that a gap of 3 months between underpayments does not automatically break the chain of the ‘series of the deductions’.

What happened?
The Claimant(s) had been paid their ‘basic pay’ only whilst on annual leave i.e., not calculated including overtime and allowances. This was incorrect as they should have been paid their ‘normal pay’ which would have been calculated including overtime worked and other allowances.

The Claimant brought a claim for the series of underpaid holiday and for unlawful deductions from wages. The Court was also to decide whether underpayments were broken by a 3 month gap in the ‘series of deductions’ and were to therefore look at how far back the Claimants claims for underpaid holiday could be claimed back for.

What did the Court decide?
A gap of 3 months (or more) between underpayments/deductions does not automatically break the chain of the series of deductions, for the purposes of a claim for holiday pay. This therefore overturned the findings in the case of Bear Scotland Limited v Fulton 2014 which had established the ‘three-month break rule’.

The period for a claim to be brought is still three months from the date that the last payment was made but this time period does not restrict what can constitute a ‘series of deductions.

Whether a deduction forms part of a series, will be decided on a case by case basis and the Courts will need to consider all of the circumstances, and whether they are linked or not.

Why is the decision important for employers calculating holiday pay?
Employees can now make claims for historic deductions regardless of whether the deductions are more than 3 months apart.

This means that employers will need to ensure that holiday pay is calculated correctly (albeit they should be doing this anyway!). Failure to do so can result in financial consequences for companies.

It is still worth noting that unlawful deductions from wages claims in the United Kingdom under the Employment Rights Act 1996 will still only go back for a maximum period of 2 years.

If you have any questions in relation to holiday pay and how to calculate it correctly, then please contact our Employment team.