Holiday Pay Liability: Assessing Your Risk

Currently, if a worker is not given paid leave, or where an employer fails to pay the correct amount of holiday pay, the relevant worker can claim for unlawful deduction from wages in the Employment Tribunal or make a claim under regulation 30 of the Working Time Regulations 1998. The employer can be ordered to pay the worker any holiday pay due plus compensation.

Changes proposed in the Employment Rights Bill (ERB) will have an effect on holiday-related compliance, and recent activity in the Employment Tribunal and Employment Appeals Tribunal has considered the way in which compensation on unpaid holiday pay is dealt with and whether interest can be levied on unpaid amounts. In this article, we look at these evolving issues and the risks they pose for employers.

The Fair Work Agency

The proposed new FWA (please see article above) will be responsible for enforcement of minimum wage, sick pay and worker entitlements, and it will also have authority over holiday pay compliance. These powers include issuing underpayment notices, with penalties of up to 200% of the owed amount and a 28-day rectification period.

Employers will be required to maintain holiday pay records, demonstrating compliance for six years, with penalties for non-compliance including civil charges and fines.

Compensatory power of tribunals

The issue of compensatory power was recently considered by the Employment Appeal Tribunal (EAT), specifically in relation to a tribunal can award interest on unpaid holiday pay (Main -v- SpaDental Ltd [2024] EAT200).

In this case, the claimant had provided services to a dental company. No entitlement had been given to paid annual leave during nearly 6 years of service. The claimant had been bankrupt for a period of a year during this time. When the contract was terminated, the individual claimed that he had been a worker and that he was owed 6 years of holiday pay. The claim was upheld by the Tribunal and stated that he was owed £83.5K in unpaid holiday pay. A further claim for interest to be added to the amount was rejected.

The EAT partially upheld the appeal for compensation to be added, holding that any compensation should be awarded to his bankruptcy trustee. Tribunals may not have power to award interest on unpaid holiday pay but regulation 30 allows for ‘interest-like’ compensation awards, to compensate a worker for the financial reduction in value they have suffered from the failure to pay holiday pay. The case will be reconsidered by the original tribunal with regard to the issue of interest-like compensation on the unpaid holiday pay.

Action points

• Correctly categorising workers - if individuals are miscategorised, for example if they are being treated as consultants when they could claim to be workers, they might be able to pursue claims for unpaid holiday pay. The claims can extend as far back as when their contract first started, which could result in considerable compensation claims.
• Consider how far compensatory power can extend – as well as ‘interest-like’ compensation, a tribunal may consider other reasons to increase the amount. For example, holiday pay is generally pensionable pay and pension contributions may have been impacted by non-payment.

If you are concerned about compliance with holiday pay legislation and your exposure to risk, please contact the Boardside team. Email enquiries@boardside.co.uk