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HR urged to check holiday pay policy pending Supreme Court ruling

HR has been urged to ensure Working Time Directive (WTD) leave is in order pending a Supreme Court decision relating to holiday pay.

The case of Chief Constable of the Police Service of Northern Ireland and another v Agnew and others is being heard in the Supreme Court from 14 to the 16 December.

Depending on the outcome, the case could make it easier for workers to claim for historic underpayments of holiday pay and make it harder for employers to work out what rate of holiday pay should be paid. 

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In preparation for the decision, which isn’t expected until early 2023, Lesley Rennie, principal employment law solicitor at WorkNest, said now would be a good time for HR teams and business to review holiday practices.

Speaking to HR magazine, Rennie said: “In readiness for the decision in Agnew, HR leaders should be evaluating their holiday pay practices now and looking back over the last couple of years to identify whether there have been any underpayments of holiday pay.

"The decision may also deal with how to calculate normal remuneration and appropriate reference periods which could mean that what was previously thought to be a compliant payment was in fact incorrect. Without this information, businesses will be unable to effectively assess their potential liability and to promptly respond to the decision and any resultant complaints from their workers."

Currently, if an employee’s holiday pay is incorrect, they must bring a claim forward within three months of when the deduction was made or, if a string of underpayments have been made, within three months of the last time they were under paid for their holiday.

Rennie explained: “This mitigated the potential financial liability for employers as workers couldn’t link historic underpayments where they were separated by more than three months or correct payments of holiday pay.”

In a prior case, Scotland Ltd v Fulton and another, a gap of more than three months was found to break any series of deductions, but Rennie said it's unlikely the Supreme Court will maintain this rule 

She added: "Even if the Supreme Court follows Bear, which does seem unlikely, the surrounding media attention may pique workers’ interest and encourage them to raise issues with any actual or perceived underpayment of holiday pay. The ongoing cost of living crisis provides an added incentive for workers to do so.”

Comments made during the 2021 Employment Appeals Tribunal Smith v Pimlico, also concerning holiday, indicate that the Supreme Court may agree with Agnew which would increase the employer’s potential liability historic underpayments of holiday pay.

The case also argues that any given holiday day is a combination of all types of leave, which means it can be a combination of WTD leave and Working Time Regulation (WTR) leave, rather than one or the other.

Rennie added: “Pay for WTD leave days must reflect normal remuneration so it must take into account things such as commission, allowances and overtime.

“If we must distinguish between WTD and WTR leave, businesses would need to carry out complex calculations to work out what element of each makes up a holiday day and pay it accordingly or apply a blanket approach of paying all holiday days at the rate of ‘normal remuneration’.”

Though a Northern Irish case, the decision will be binding throughout the entire UK employment tribunal system.

The case follows the Supreme Court's ruling on Harper Trust v Brazel from earlier this year too which found holiday pay for permanent staff who only work part of the year, such as term time workers, should be entitled to a full 5.6 weeks annual leave a year.