NI aligns holiday pay with GB but omits two-year backstop

As we reported a fortnight ago, Northern Ireland’s Department for the Economy has published its formal response to last year’s Good Jobs consultation on employment rights. The aim is to modernise Northern Ireland’s employment law framework and bring it closer into line with Great Britain. It’s headline news for employers with staff in Northern Ireland because it signals the biggest overhaul of employment law there in over a decade.

One of the key changes confirmed in the response paper relates to holiday pay, and in particular, the calculation of holiday pay for workers with irregular hours. That’s long been a challenge for payroll teams, especially in sectors with seasonal demand. We’ll speak to a Belfast-based employment lawyer about what’s changing, and what this means for employers.

The Department’s response paper – ‘The Way Forward’ – confirms that the reference period used to calculate holiday pay for variable hours workers in Northern Ireland will increase from 12 weeks to 52 weeks. That’s designed to smooth out seasonal fluctuations in pay and bring Northern Ireland into line with the approach already adopted in Great Britain. It also reflects the Supreme Court’s findings in the Agnew case, which indicated that a longer reference period better reflects average earnings. For employers operating across both GB and NI, this should make things simpler when it comes to payroll and compliance.

But it’s not all good news for employers. Despite many calls for change, the Department has not proposed introducing a two-year backstop for holiday pay claims – a safeguard which applies in Great Britain. That means, in Northern Ireland, claims for underpaid holiday can still potentially go all the way back to 1998, when the Working Time Regulations first came into force.

Earlier I caught up with Belfast-based employment lawyer Laura McManus to discuss the implications and the steps employers should now be taking. So, what’s changing?

Laura McManus: “What's changing? It's the reference period and the reference period only, but the main point for employers always to take away with holiday pay is that in Northern Ireland there's no backstop. The ‘so what’ question is really that in GB if you have an employee who brings a claim for underpayment of holiday pay they can only claim back two years from the date that they're presenting their claim to the tribunal. In Northern Ireland, their claim can go back to the beginning of their employment, or the date of the working time regulations which is 1998 so for any long-standing employees the liability could be huge. This is something that employers have known about ever since the Court of Appeal judgment came out in Northern Ireland so it's nothing new and, in theory, we should have found where our gremlins are but, again, it's always worth reminding companies who have maybe moved into Northern Ireland, or who are very much UK focused, and I mean that as in there's no difference between GB and Northern Ireland, they need to understand where the potential liabilities could be. So it's always worth reminding people of that.”

Joe Glavina: “So is it a case of working with clients to conduct audits to understand where the risks lie? Is that what you’re doing now for clients, Laura?”

Laura McManus: “Yes, it was very much an ongoing piece of work, as I say, ever since the Court of Appeal decision in Northern Ireland and now obviously we have the finality of the Supreme Court decision. It’s always something that we're recommending to clients, it’s always something that is, I suppose, good hygiene, so to speak, that we're saying, have a look at everything, is everything being done correctly? This is especially important for clients who have UK-wide operations because, in my experience, that's where things can become particularly tricky because they apply the GB rules to Northern Ireland and that's where they can fall down and the risk can arise. So, actually, the move from a 12-week reference period to a 52 week is really helpful for those clients, and they'll be really glad to see that.”

Joe Glavina: “Can we turn to seasonal workers, Laura, because this is one of the groups that’s going to be most affected by this change isn’t it?” 

Laura McManus: “Yes very much so. Again, if you're a seasonal worker a 12-week reference period can be really helpful because you're doing all of your additional hours, let's say, for example, in the summer but if that the reference period now moves to 52 weeks, well there's that whole period where you were maybe only doing 12 hours a week, and that is now going to effectively lower down your holiday pay calculation. So they are the losers in this change.”
Joe Glavina: “This sounds like work for payroll, so what is HR’s role in this?”

Laura McManus: “It depends how the company is set up. So how big your operations are. Are your finance very separate to your HR and how is it coded internally? If you have a small operation where HR is very closely aligned to finance, they can be keeping your finance people on the straight and narrow, so to speak, to make sure they're using the correct calculation. If they're separate, then there's just more space for the message to get lost as to how holiday pay should be correctly calculated, but HR play a really important role in this ensuring that holiday pay is correctly calculated and communicated back to the employee when they inevitably have questions because it's not always really clear to understand when it's just on a pay slip saying holiday pay £100 so HR play a really important role.”

The Northern Ireland government’s response paper is called ‘The Way Forward’ and was published on 28 April. It sets out in detail the outline proposals for a new Employment Bill which will cover not only holiday pay, but also a number of other key areas including zero hours contracts, the right to disconnect and trade union access and recognition and Laura will be covering all those in the next few weeks so do watch this space. Meanwhile we have included a link to the paper in the transcript of this programme for you.

- Link to ‘Good Jobs’ Employment Rights Bill – The Way Forward