The Deduction from Wages (Limitation) Regulations 2014 came into force on the 8th January 2015. These have been introduced by the Government to limit the impact on businesses of claims for backdated holiday pay, particularly significant claims which may arise as a result of recent decisions that payments such as overtime and commission must be included in the calculation of holiday pay (see previous blogs for further information).
The regulations make two key changes: the introduction of a two year limit on all deductions from wages claims, and amending the Working Time Regulations to clarify that they do not confer a contractual right to annual leave.
Two year limit
The regulations apply to most claims for unlawful deductions from wages, including deductions from salary, holiday pay, commission and bonuses. Some types of claim are specifically excluded, such as deductions from statutory sick pay and statutory maternity, paternity or adoption pay. Holiday pay is the main claim which presents a concern for employers at present and is largely the reason for the introduction of the regulations. The Government notes they were concerned with limiting the impact of significant claims on businesses, particularly small to medium businesses and those in industries where paid overtime is widespread.
Such claims are now limited to a period of two years prior to the date on which the claim is raised. Employees can therefore only raise claims for deductions in respect of payments which were made in the two years prior to the date of raising the claim. The intention behind this change is to prevent claims for a series of deductions which extends back a number of years.
This change will only apply to claims raised on or after 1st July 2015. The six months from the introduction of the Regulations on 8th January 2015 is intended as a ‘transition period’ to give workers time to consider their position in light of the changes to the law. Therefore, until July it will still be possible for workers to make claims for deduction of wages going back farther than two years, meaning there is still the possibility of significant claims for backdated holiday pay being made during this six month period (where the employee’s relevant circumstances all for this).
No contractual right
A further provision made by the regulations is to clarify that the Working Time Regulations 1998 do not confer a contractual right to annual leave: the right is statutory. This regulation comes into force immediately on 8th January 2015.
The intention is to limit the ability of workers to avoid the 3 month time limit for bringing an unlawful deduction claim in the Employment Tribunal by raising claims for breach of contract in the civil court. Such claims have a limitation period of 5 years in Scotland, and therefore offer a longer period to claim backdated holiday pay.
Employers should consider the wording of their contracts of employment as it is still possible for rights to be conferred by the contract itself, particularly where holidays beyond the statutory minimum are given. The regulations will also not affect contractual rights which have already been conferred, but they do clarify that annual leave under the Working Time Regulations is a statutory right and claims for underpayment should be raised in the Employment Tribunal and not in the civil courts.
