Holiday pay is on the mind as we approach July and August. Employers who do not accurately calculate holiday pay may find themselves on the receiving end of a claim, which is usually as an unlawful deduction from wages claim. 

As we have written previously, the old three-month break between deductions is no longer good case law following the Supreme Court decision of Agnew (Chief Constable of the Police Service of Northern Ireland v Agnew [2023] UKWC 33; [2024] ICR 51). As long as a claim is brought within three months of the last deduction, a claimant can link a series of deductions or underpayments in a single claim, although backdated holiday pay is limited to two years (not including Northern Ireland) thanks to The Deduction from Wages (Limitation) Regulations 2014.

Agnew was applied in British Airways v De Mello where the Employment Appeals Tribunal (EAT) was asked to consider the statutory holiday pay entitlement of members or former members of British Airways Cabin Crew. In particular, in issues relating to the principles governing the calculation of normal pay for these purposes and as to the time limit for tribunal claims asserting underpayment. 

British Airways had a complex system of multiple allowances that supplemented their Cabin Crew’s basic pay, applying variously depending on circumstance. Issues arose as to which of these allowances should be included when calculating holiday pay, which the Cabin Crew argued should all be counted as normal pay for the purposes of the calculation, bringing a claim for unlawful deduction of wages. Of particular analysis was whether an allowance should be viewed as a performance payment, and part of normal pay, or an expenses payment, and not part of normal pay.

A number of disputes related to which of these allowances should or should not form part of statutory working time holiday pay, in particular in accordance with applicable principles of EU Law. Leave was either EU-based leave (Regulation 13 of the Working Time Regulations), UK statutory leave (Regulation 13A) or contractual leave although BA did not specify in which order these were taken, therefore each leave day was deemed to be a composite of the various leaves which were paid at different rates. This leaves open the door to employers being able to decide the order, just as long as this is specified to the employee, so the least generous being allocated first in the year is possible. It is vital that employers are clear which leave applies first or whether all leave is a composite, and that holiday pay is correctly calculated going forwards at least. 

The government’s guidance published at the start of 2024 and updated in April, states:

From 1 January 2024, the components which must be included when calculating ‘normal’ rate of pay are defined in regulations.

The following payments must be included in the 4 weeks of normal (regulation 13 leave) holiday pay: 

• payments, including commission payments, intrinsically linked to the performance of tasks which a worker is contractually obliged to carry out
• payments relating to professional or personal status relating to length of service, seniority or professional qualifications
• other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the calculation date.