Supreme Court Clarifies Holiday Pay Rules: What Employers Must Know After Agnew
The Supreme Court has now delivered its long-awaited decision in the case of Agnew v Chief Constable of the Police Service of Northern Ireland, significantly reshaping how underpaid holiday claims may be handled — especially in Northern Ireland, but with potential consequences for employers across the UK.
The judgment, handed down in October 2023, confirms that where employees are paid less than their normal pay during annual leave, they may be able to claim backdated holiday pay over an extended period — even if gaps exist between payments or some were correctly made.
Here’s what employers need to know and what steps to take to avoid unexpected liabilities.
Background to the Case
The claim was brought by thousands of employees of the Police Service of Northern Ireland, both officers and civilian staff, who were consistently paid only basic pay when taking annual leave, despite regularly working overtime.
This practice conflicted with existing case law — starting with Williams v British Airways and later Bear Scotland v Fulton — which held that holiday pay should reflect normal remuneration, including regular overtime.
While the employer accepted the holiday pay had been under-calculated, the dispute centered around how far back claims could go — and whether the existence of lawful (correct) payments or long gaps between underpayments could prevent employees from linking their claims as a continuous “series” of deductions.
Supreme Court Findings
The Supreme Court ruled:
A ‘series’ of unlawful deductions can still exist even if the underpayments vary in amount and timing — they don’t need to be made in a strict, uninterrupted sequence.
The series is not automatically broken by:
A lawful (correct) holiday pay calculation, or
A gap of more than three months between underpayments.
What matters is whether the payments stem from the same underlying issue — in this case, calculating holiday pay based solely on basic pay instead of normal pay.
Additionally:
There is no legal requirement that statutory (WTD) leave and additional leave be taken in a particular order.
The 52 week reference period remains a reasonable approach for calculating average holiday pay where overtime is concerned, though it is ultimately a factual determination.
What This Means for Employers
The Agnew judgment effectively widens the window for employees to claim backdated holiday pay — especially in Northern Ireland, where no legal backstop currently limits how far back claims can stretch.
In Great Britain, however, employers are somewhat shielded by the Deduction from Wages (Limitation) Regulations 2014, which restrict backdated wage claims (including for holiday pay) to a two-year period.
Nonetheless, this case is a reminder to all UK employers that:
Contracts and payroll systems must accurately reflect normal pay during holidays, not just basic pay.
Regular overtime, commissions, and allowances should be included where relevant.
Incorrect holiday pay practices can trigger claims involving long periods of underpayment — particularly if issues go unaddressed.
FAQs for Employers
Q: Does this decision apply to all employers in the UK?
A: The legal principles apply across the UK, but only employers in Northern Ireland are currently exposed to unlimited backpay liability. In England, Wales, and Scotland, claims are capped at two years by law.
Q: What is considered “normal pay” for holiday purposes?
A: It includes basic salary plus any regular additional payments, such as:
Guaranteed and non-guaranteed overtime,
Shift allowances,
Regular commission,
Bonuses that are part of normal remuneration.
Q: Are we at risk if we’ve paid basic pay only during holidays?
A: Yes — especially if employees regularly earn more than basic pay. If normal pay is higher due to overtime or other supplements, holiday pay must reflect this.
Q: Do gaps of more than three months between underpayments break a series?
A: Not necessarily. The Supreme Court held that such gaps do not automatically break the chain of deductions. The key question is whether each underpayment shares the same underlying cause.
Q: What should we do if we’re concerned about our past holiday pay practices?
A: Conduct an internal audit of holiday pay calculations. If you identify historic underpayments, seek legal advice to assess risk exposure and consider corrective actions.
✅ Recommended Next Steps
To reduce risk and ensure compliance going forward:
Review how holiday pay is calculated — especially for staff who receive variable pay or work regular overtime.
Update payroll systems and employment contracts to ensure they reflect current law.
Document your rationale and processes for calculating holiday pay to evidence due diligence.
Engage legal advice early if faced with holiday pay disputes or historic underpayments.
If you’re unsure how this ruling affects your business or want support in reviewing holiday pay processes, our specialist employment lawyers are here to help.