COMPLIANCE
Holiday pay: the PSNI case that could cost the employer £40 million
Justine Riccomini MSc FFTA AIPA Chartered MCIPD ChFCIPP, head of taxation, the Institute of Chartered Accountants of Scotland (ICAS), explains the decision in the recent Police Service of Northern Ireland (PSNI) case
Main points l 3,700 PSNI employees won a landmark victory at the Supreme Court over holiday pay arrears l the holiday pay had been calculated using the wrong rate of pay, which didn’t include overtime l in Northern Ireland (NI), a claim can go back to 1998, due to the non-application of a two-year ‘backstop’, introduced in the Deduction from Wages (Limitation) Regulations 2014 which applies in England, Scotland and Wales. A decision handed down by the Supreme Court on 4 October 2023 in the case of the Chief Constable of the Police Service of Northern Ireland and another (Appellants / Cross-Respondents) v Agnew and others (Respondents / Cross- Appellants) (Northern Ireland) could have far-reaching implications for many workers and employers in terms of holiday pay arrears. The case can be accessed in full here: https://ow.ly/1Iir50Q6SM1. Background The case was brought by Unison on behalf of Alexander Agnew and 3,700 of his PSNI police and civilian staff colleagues. As a result of the decision, the workers would become entitled to claim arrears of holiday pay based on a calculation of so-called ‘normal pay’, as opposed to the method
upon which it had been paid – that of so- called ‘basic pay’.
created by the acts of being asked to work, and agreeing to work, overtime.
Normal pay vs basic pay The calculation for normal pay includes overtime. However, an assumption had been made in this case that it was sufficient to remunerate the officers and civilians using only their basic pay rate while on holiday, as they weren’t actually working and therefore couldn’t be accruing overtime payments. European case law deems that the employees were entitled to ‘normal pay’ during periods of annual leave, which includes an element of overtime based on previous weeks’ averaging. This concept came to light in the 2014 Bear Scotland v Fulton Employment Appeal Tribunal (EAT) case, where it was decided that employees who regularly work overtime should receive additional holiday pay, because an expectation of their ‘normal pay’ had been
Time-barred? One of the outcomes of the Bear Scotland case was that a protection against pay claims extending back to 1998, when the Working Time Regulations were introduced, was set out. The decision stated that if a gap of three months or more between holiday underpayments existed, future claims wouldn’t succeed. Furthermore, the Deduction from Wages (Limitation) Regulations 2014 came into effect in 2015, which amended the Employment Rights Act 1996 and introduced a so-called ‘backstop’. This had the effect of time-barring claims which related to unlawful deductions from wages (including holiday pay) made more than 24 months prior to the date of the claim. Key to the PSNI case, however, was the fact that this ‘backstop’ rule wasn’t enacted
"The Supreme Court went on to determine that the Police Service of Northern Ireland had made a series of unlawful deductions, each being linked to its predecessor by a common error – holiday pay had been calculated by reference to ‘basic pay’ rather than 'normal pay'"
| Professional in Payroll, Pensions and Reward | December 2023 - January 2024 | Issue 96 24
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