Employees bringing pay claims at employment tribunals from today (1 July) onwards will only be able to claim for unpaid wages for up to two years.
The change to unlawful pay reductions was introduced in January to address concerns that rulings in recent holiday pay cases could lead to a high volume of backdated claims.
The government announced the decision following the Employment Appeal Tribunal’s (EAT) judgment in November 2014 in cases such as Bear Scotland v Fulton.
In this case, the EAT ruled that regular non-guaranteed overtime that workers are required to do, should be included in holiday pay calculations.
The Northern Ireland Court of Appeal in Patterson v Castlereagh Borough Council found that there is no reason why purely voluntary overtime should not also be included in holiday pay.
Esther Smith, partner, employment law at law firm TLT, said: “This is an important development following some recent case law which suggested that many employers may have been incorrectly calculating holiday pay in certain circumstances.
“This is a particular problem for retailers who may not have included overtime or commission in holiday pay calculations. The extent to which retrospective back pay claims could be pursued remained an arguable point.
“This is welcome legislation as it offers some certainty to employers provided that the claims are not submitted before 1 July 2015.
“Employers need to correct holiday pay calculations going forward. It will therefore be wise to undertake a comprehensive review of pay practices to assess potential financial liability. Consideration should also be given to the likelihood of back pay claims and the potential liability.
“Many unions are raising the issue and are seeking to negotiate back pay settlements. Care should be taken before making any concessions to, or deals with, the unions.”