Unlawful holiday pay ruling could cost employers dear

Employers who pay holiday pay by putting extra into the weekly or monthly
pay packet could be liable for arrears dating back to 1998 following a ruling
that it is unlawful.

In MPB v Munro, the employer added an allowance of 8 per cent to each weekly
pay packet as holiday pay.

But this failed to meet the company’s obligations under the Working Time
Regulations, the EAT said. Holiday pay should be paid at the appropriate rate
as and when holiday is taken to ensure workers are able to take their full
leave entitlement, especially early in the year.

Lawyers say this ruling is at odds with previous decisions on holiday pay.
They are hoping the Court of Appeal will clarify the position in the Gridquest
case which is expected to be heard shortly.

If the MPB ruling is confirmed, employers who pay rolled-up rates will be
deemed not to have paid any holiday pay for the purposes of the Regulations.
This has particularly serious implications following the decision in List
Design Group v Catley (see Case Round-up, April) which permitted employees to
recover non-payments for previous holiday as arrears of wages.

"Employees who have been paid a rolled-up rate could potentially claim
arrears of holiday pay going back to 1 October 1998, the date when the
regulations came into force," according Jon Fisher, associate at Pinsent
Curtis Biddle.

He advises employers to consider whether there is a practical alternative to
paying a rolled-up rate.

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