Holiday pay rules applied to temporary worker
What holiday pay rules apply to temporary workers? We examine the ruling in Deksne v Ambitions Ltd 2024, which looks at the issues employers need to be aware of.
Case summary
In this recent Employment Appeal Tribunal (EAT) decision, a temporary worker won two years’ back pay from her former employer in a claim for unlawful deductions from wages, specifically underpaid holiday pay. This case comes after the Supreme Court ruling in the Police Service of Northern Ireland v Agnew which held that neither a gap of more than three months between underpayments nor a lawful payment of holiday pay will break a series of unauthorised deductions from wages, as long as each unlawful underpayment is linked to its predecessor by the incorrect calculation of holiday pay. You can find more information about this case in our article here: Landmark ruling by the Supreme Court regarding underpayments of holiday pay.
Holiday pay calculations
Holiday pay should be calculated to include all normal pay entitlements, including regular commission, overtime payments and shift allowances. The EAT has previously ruled that even a meal allowance in the case of cabin crew may need to be included in holiday pay, if it is intrinsically linked to the performance of duties (De Mello v British Airways Plc). Payments intended to cover occasional or ancillary costs and bonuses, on the other hand, do not need to be included in holiday pay calculations.
It was previously established in case law that employees could claim back holiday pay which had been calculated incorrectly, as long as there was no break in the chain of a series of deductions. Underpayments of holiday pay with gaps in time exceeding three months or more would previously be considered as breaking the chain. Such a gap between incorrect holiday pay calculations could therefore have acted as a ‘get out of jail free card’ for employers when dealing with long-standing holiday pay miscalculations.
Recent EAT decision
In the recent EAT case of Deksne v Ambitions Ltd, Ambitions Ltd was a temporary employment agency which had underpaid Ms Deksne’s holiday pay. However, as a temporary worker, there were times when she did not work and therefore the Tribunal held that a break of over three months stopped the deductions being considered as part of a series.
On appeal, the EAT has now clarified that a gap of over three months between deductions of pay will not automatically break a “series” for the purposes of an unlawful deduction of pay claim, including backdated claims for miscalculated holiday pay.
The EAT held that in order to break the chain, all relevant circumstances must be considered, including the similarities, differences, frequency, size and impact of the deductions – not just the time gaps. In practice, this means that underpayments caused by the same holiday pay miscalculation may be treated as a series or a chain, even where there are potentially significant gaps of time between them.
What does this mean?
The good news for employers is that under the Deduction from Wages (Limitation) Regulations 2014, employees can only claim up to a maximum of two years’ back holiday pay. However, there is an important exception to the two-year limit for backdated claims in cases where the reason the individual did not take their leave was because they had been miscategorised as self-employed. In such cases, where there has been an assumption that the individual was not entitled to holiday pay at all but they are subsequently re-categorised as workers or employees, case law provides that the holiday has been carried forward indefinitely from year to year until termination, whereupon the worker is entitled to be paid in lieu of all unpaid holiday pay (which could go back several years).
This EAT case is a reminder of the need for employers to get holiday calculations right, ensuring that workers are paid holiday pay which includes all their normal payments.
Employers should be cautious where they are aware of any previous holiday pay miscalculations which they had been banking on being out of time, as this case illustrates that a significant time gap between underpayments will not automatically be time barred. This decision could result in significant compensation payments being made to the workforce in this situation.
Get in touch with Blake Morgan’s employment team for advice on holiday pay.
Share:
Seeking advice on employment law issues?
Speak to one of our employment law specialists
Arrange a callHOW CAN WE HELP?
To get in touch with one of our legal experts please fill in your details.
Enjoy That? You Might Like These:
articles
articles