Stay Updated on Legal Developments: Implications of Supreme Court Ruling on Holiday Pay
Keeping up with legal developments that impact our businesses is crucial. Last week, the Supreme Court heard a case that should serve as a wake-up call for small firms.
The court ruled in favor of thousands of police staff in Northern Ireland who can now reclaim up to 35 years’ worth of miscalculated holiday pay. This ruling could lead to a potential bill of over £40m for employers.
While historical claims for underpayment are limited to two years in England, Northern Ireland could see claims reaching back to 1998.
Understanding the Judgement
In a significant decision, the Supreme Court upheld the Northern Ireland Court of Appeal’s ruling from 2019. It was determined that holiday pay for police workers should have been calculated based on their ‘normal’ pay, including overtime, bonuses, and commission, rather than just their basic pay. The court also removed the limit on potential payment periods if a common reason for underpayments can be established.
Implications for Employers
Although legislation on holiday pay calculation has been in place for some time, this case addresses specific and widespread conditions. Small businesses with commission schemes, overtime payments, or bonus schemes are likely to be most affected.
However, it’s important not to panic. Tribunals decide cases individually, and this ruling does not mean the law is settled for everyone.
In my opinion, the strong relationships often found in small business communities between employers and employees may prevent many from litigating. Mutual respect and open communication can lead to alternative resolutions.
Yet, when statutory rights are infringed, negotiations may reach a limit. Considerations should also be given to how claims were brought forward and how they are handled for former employees.
Calculating Holiday Pay with Variable Commissions
Calculating holiday entitlement that includes variable monthly commission can be complex. To ensure fair entitlement, it’s essential to maintain accurate records of commission payments and communicate the calculation method transparently to employees. Seeking professional advice on aligning holiday pay calculations with current regulations is also recommended.
To calculate holiday entitlement with variable monthly commission:
- Establish a reference period of 12 months or more
- Collect commission payments and calculate the total and average per month
- Establish the daily rate
- Calculate holiday pay including commission by adding basic pay to the daily commission rate for each day of the holiday period
The same principles apply for bonuses if they are paid regularly enough.
Advice for Employers Moving Forward
While your employees may not be aware of this case or interested in pursuing a claim, it’s essential to know your company’s position and be prepared. Assess your risks and calculate potential liabilities based on the past two years.
If you are found liable, creative solutions can be explored to compensate the employee fairly. Seeking advice from your finance and HR departments can help manage the financial impact.
Reducing other employment benefits temporarily may be a pragmatic option if budget constraints are a concern. Regardless of the approach, treat this as a line in the sand for future compliance.
Natasha Kearslake, Director at Organic P&O Solutions, based in Reading
