New rules for holiday pay in the UK could cost employers more

Posted on 1st January, 2015
, in UK 

Estimated reading time 3 minutes

Changes to the way in which holiday pay is calculated in the UK will bring additional expense to many employers in 2015.

Under the Working Time Regulations 1998, all UK employees are entitled to 28 days’ paid holiday per annum, of which 20 days are required under EU Law.  Previously, holiday pay for most employees was based on salary only.  Following a ruling by the UK Employment Appeals Tribunal in 2014, the 20 days’ holiday required under EU Law must now be calculated according to an employee’s ‘normal remuneration’.  ‘Normal remuneration’ is defined as the pay which an individual ‘normally receives’ and can include commission, allowances, non-guaranteed overtime, call out payments, temporary supplements or bonuses. 

As well as the additional expense going forward, employers may also be subject to historic claims from employees who believe they have been underpaid for their holidays in the past.  If a series of underpayments can be established, such claims may prove costly.  If no such series can be established, claims can only be made in respect of holiday pay received in the last three months.  To limit the effect of the ruling, the UK government will introduce the Deduction from Wages (Limitation) Regulations 2014, which will limit to two years any claims for a series of underpayments of holiday pay that are received on or after 1 July 2015.

To avoid any future liability, it is important that employers check their holiday pay procedures and ensure that holiday pay is based on ‘normal remuneration’ from 2015.


Further information

For further information or to discuss any of the issues raised, please contact Sophie White at Abbiss Cadres on (+44) 203 051 5711.


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