Firms could save £millions following wage deduction legislation

Employers in the manufacturing sector stand to save millions of pounds following a change of legislation to wage arrears claims – which limits how far back employees can recover ‘unlawful deductions of wages’.

Previously, backdated wage claims were estimated to cost employers up to £1.2bn annually.

Following the change in regulation, figures are forecast to be dramatically reduced to between £250m – £450m.

The legislation, which prevents Employment Tribunals from taking into account wage deductions made more than two years before a claim was made, only apply to cases brought to tribunal on or after July 1 – existing proceedings are unaffected.

The new rules were introduced following a finding by the Employment Appeal Tribunal that payment for non-guaranteed overtime – i.e. overtime a worker is required to do on an ad-hoc basis – should be included in the calculation of an employee’s holiday pay.

This had followed an earlier verdict from the Court of Justice of the European Union that sales commission should also be reflected in the calculation of holiday pay. These cases led the government to take action to limit ‘historic’ claims.

Barry Warne, partner & head of employment law, hlw Keeble Hawson.
Barry Warne, partner & head of employment law, hlw Keeble Hawson.

Barry Warne, partner and head of employment law at hlw Keeble Hawson, commented: “Employers need to be aware that although the regulations apply to a number of unlawful deductions from wages, including holiday pay, bonuses and commission, they do not affect payments such as Statutory Sick Pay; Statutory Maternity; Adoption; Paternity, and Shared Parental Pay.

Warne added: “While undeniably beneficial to employers, this change in no way removes any of the employee’s rights to protection if they make a claim within the two year limit. However with the inclusion of the overtime and commission within the holiday pay calculation, employees who act promptly may still be in a better position than they were before.”