Claims companies will take their cut of holiday back pay

Most employers are still getting to grips with the implications of the recent legal rulings on holiday pay calculations. With stastics being banded around of an estimated 3 to per cent average wage bill increase, smaller employers are particularly concerned about the enormous impact the changes may have on the profitability of their business.

Happily, the Federation of Small Business (FSB) is represented on the Employers Taskforce, recently set up by the government to examine this whole issue. However, since these rights are based on EU law, short of leaving the EU, there is very limited scope to do more than provide clarity around uncertain areas, such as reference periods and applicability to purely voluntary overtime.

In the meantime, many employers are holding their breath and waiting to see whether there will be claims for back pay. Claims from the August Bank Holiday are already out of time, but not if there was a further underpayment for any holiday taken during the October half term. However, the three month clock for lodging claims is ticking and many employees, and indeed some unions, seem to be accepting that, provided the issue is addressed in the future, they will not press for back pay.

That said, there is some evidence that this new line of claims is being seized on by claims companies, who are advertising their services to workers most likely to be affected. That includes those working shifts, and/or overtime, and/or earning sales commission, all of whom may have claims for holiday pay arrears.

One such claims company is offering to assist workers who lodge an internal grievance through ACAS Early Conciliation and on to a tribunal hearing, if required, for a minimum fee of 20 per cent plus VAT of the back pay recovered. The company is targeting both individuals and groups of workers who are working unsociable hours or in shifts. Although the campaign is currently aimed solely at Scottish workers, it is likely to be only a matter of time before similar advertisements appear across the rest of the UK.

The message for small and medium-sized enterprises (SMEs) is to take seriously any grievance raised, or suggested back pay claim, whether that comes from the worker direct or via an ACAS conciliator who may call the employer as part of the Early Conciliation process, before a claim is lodged.

In addition, there is some suggestion that back pay claims may be brought in the County Court, to take advantage of the longer, six year, limitation period. Therefore, employers also need to have an eye to this as a possible further type of claim that may be brought against them. Taking specific legal advice before conceding any claim (however small) is crucial, in order to avoid setting a precedent for other workers.

However, all employers will also need tailored, personalised advice on how the new law applies to their particular business, and may need help weighing the options for calculating holiday pay entitlement in the future. If holiday pay does need to be calculated differently, employers should address this sooner rather than later, since each time there is a further underpayment, the claims limitation clock restarts and employers are again vulnerable to back claims.

Nikki Duncan is an employment partner at Michelmores