HR-watchers will no doubt have taken note of some landmark Employment Appeal Tribunal (EAT) rulings over the past several months regarding annual leave payments. The crux of the issue surrounded the amount of pay employees usually got rather than their basic pay. That is, those who habitually work overtime or who earn commission would suffer sometimes significant pay cuts when they took annual leave.

The best known cases are Lock v British Gas Trading (commission) and Bear Scotland v Fulton (overtime), both of which found in favour of the employees. Lock’s case was particularly severe – as a salesman, around 60% of his income comprised commission, which meant that during his annual leave he could expect to be paid just 40% of his normal income.

The issue is also of concern to employees who are paid a bonus for working shifts, which is over and above the hourly pay itself. Such employees might only get their basic pay when they are on leave as they are technically not shift-working.

It’s easy to sympathise with both the employer and the employee. Commission is, after all, an incentive to do better work, and overtime is supposedly for exceptional circumstances only, and should not be expected. But balanced against that is an employee’s expectations and requirement to keep household cash flow running smoothly against unavoidable outgoings. Holidays are within an employee’s rights and should not incur a penalty.

Stemming the Potential Flood

To prevent a torrent of back-pay claims from employees who feel they have been historically underpaid, the government has stepped in to impose a two-year limit to claims. In other words, if you submit your claim on 20 October 2015, any holidays taken before 20 October 2013 will be discounted. The move has been welcomed by employers, who had very real concerns of PPI-style claims ending up costing them large amounts in payouts.

The cap comes in to force on 1 July 2015, so employees still have a few days to make claims dating back indefinitely.

If you are an employer of staff who have come to expect overtime, shift bonuses, commission or other regular incomes above their basic pay, now would be a good time to make sure you are doing the right thing in order to avoid costly claims. Even with the two-year cap, successful claims could represent more than 8 weeks’ worth of extra payments per employee, which could be a considerable outlay.