Teal blue graphic

Calculating holiday pay - a cautionary tale

A £40 million compensation payment by the John Lewis Partnership (John Lewis) serves to emphasise the importance of accurate calculation of holiday pay. 

Background

Our recent article 'Holiday pay calculations must include overtime' considered an Employment Tribunal (ET) decision in Neal v Freightliner Ltd which confirmed that overtime (including voluntary overtime) must be included in the calculation of a week's pay for holiday pay entitlement where it is “intrinsically linked” to the employee’s required performance under the contract of employment.

Compensation payment

Following this decision, it has been widely reported that retail giant John Lewis is making payments totaling £40 million to over 80% of its employees following a review of its holiday payment practices.

For the last seven years, John Lewis had not taken into account the higher hourly wage paid to employees who worked regularly on Sundays and bank holidays when calculating their holiday pay. This higher wage would more than likely be caught by the “intrinsically linked” criteria set out in the Neal v Freightliner Ltd decision.

It has been reported that John Lewis will pay compensation for the period dating back to when it installed its payroll systems in 2006.

Comment

As previously recommended, following the decision in Neal v Freightliner Ltd we consider it to be prudent for employers to take paid overtime into account when calculating statutory holiday pay on an ongoing basis.

However, compensation payments of the type made by John Lewis are likely to be premature at this stage. This is particularly in light of the fact that the decision in Neal v Freightliner Ltd is the subject of an ongoing appeal.

Whilst strictly speaking claims for back dated holiday pay are possible, under section 13 of the Employment Rights Act 1998 such claims must be made within 3 months of the last date on which payments were incorrectly calculated. As such if practices are changed on an ongoing basis, and employees do not claim within the deadline, they may find themselves out of time to bring claims for back pay.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2013. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

Insights & events View all