Director of Labour Market Enforcement estimates 'Wage theft' of over £1.5 billion in the form of unpaid holiday pay

30 July 2018

The Government’s response to the Taylor Review (The Good Work Plan) alongside Sir David Metcalf’s publication of his Labour Market Enforcement Strategy for 2018/19 and a number of recent Employment Appeal Tribunal (EAT) decisions have all brought holiday pay right to the top of the agenda for employers across the UK over the last few months.

Over the last five years, the way in which holiday pay is to be calculated has developed significantly with numerous cases and appeals fine-tuning what should be included in payments made to workers when annual leave is taken. The overarching principle of all these cases is that a worker’s holiday pay should correspond to the ‘normal remuneration’ they receive when at work and so they should not suffer any financial disadvantage when taking leave.

Despite the far reaching judgements that have been passed down by the most senior European Courts, many employers are still failing to take sufficient action to include pay elements such as commission and overtime within holiday payments. There is still uncertainty among employers and workers about the actual requirements in relation to holiday pay; a matter which has been noted and addressed in both the Taylor Review, the Government’s subsequent Good Work Plan and Sir David Metcalf’s Strategy for 2018/19.

There is greater scrutiny from Government bodies on how to improve compliance around holiday pay going forward. The Government’s Good Work Plan considers that employers are still failing to pay holiday pay correctly and that more should be done to promote awareness of holiday pay entitlements. Sir David Metcalf’s strategy goes further recommending that compliance with holiday pay legislation should be enforced by HMRC (or another state body) much in the same way as National Minimum Wage (‘NMW’) currently is. This is off the back of Sir David’s statement that across the UK there is £3.1 billion of unpaid wages and that half of this ‘wage theft’ was in relation to holiday pay, with a further £2.25 billion of unpaid holiday a year for agency workers. His recommendation that HMRC, or a similar body, enforces holiday pay is echoed by the Trades Union Congress (‘TUC’) in their report last week in which they calculated that two million workers are not receiving the time off that they are entitled to.

And things have not gone quiet on the case law front either. Since March this year, the EAT has passed judgments on how holiday pay should be calculated for part-time workers and the impact of an industry specific code which created a contractual liability to all overtime (including voluntary overtime) being factored into calculations for holiday pay. Both of these judgements were in the employee’s favour which is increasingly common.

It is clear that in the wake of these cases employees and trade unions are now becoming more aware of their entitlement to increased holiday payments and pursuing those rights with increasing success. At the same time the Government is making preparations to enforce compliance where employees are not choosing to pursue this independently. The outcome of which, it would seem, will mean similar financial penalties and reputational impact as breaches of NMW.

If you have not recently reviewed your holiday pay practices, or undertaken a pay governance review, now is the time to act. Ensuring that you are compliant now can avoid costly historical claims and minimise the disruption arising from employee claims.

If you would like to know more please contact me or your usual PwC contact.


John Harding

John Harding | Employment, Partner
Profile | Email | +44 (0) 7801 042 607



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