New employment regulations coming into effect next month will limit the scope of backdated holiday pay claims to two years prior to the date that a claim is lodged at an employment tribunal.
This is a positive move for SMEs, say specialists at Lancashire-based Linder Myers Solicitors.
The new cap, under the Deduction from Wages (Limitation) Regulations 2014, follows the landmark decision last year which ruled that UK Regulations were out of line with EU law meaning that workers who were paid regular overtime and commission rates should receive more than their basic rate of pay during annual leave.
Latham Parry, employment specialist at Linder Myers Solicitors in Lancashire, said: “Following the landmark ruling last year, the CBI estimated that the cost to businesses in the UK for backdated holiday pay could have run into billions of pounds.
“The new cap is good news for employers, particularly SMEs and owner managed businesses who previously could have faced significant financial consequences with claims potentially dating as far back as 1998.
“The two-year limit will be welcomed by employers operating in sectors where workers are required to regularly work on an overtime or commissions basis.”
The holiday pay ruling only applies to the minimum four weeks’ holiday required by EU law and not to the additional 1.6 weeks provided by UK regulations or any holiday above 5.6 weeks that is provided in the employment contract.
Employers may also avoid costly retrospective claims if they can establish a gap of more than three months between successive underpayments of holiday pay.