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New Wage Deduction Legislation Set to Save Firms Millions

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Employers stand to save millions of pounds following a change of legislation to wage arrears claims that came into effect on July 1st.

The new regulations limit how far back employees can recover 'unlawful' deductions of wages. Historically the claims, which could have stretched back years, had cost employers up to an estimated £1.2 billion, but these are forecast to be dramatically reduced to £250m - £450m following the changes. 

The legislation prevents Employment Tribunals from taking into account wage deductions made more than 2 years before a claim was brought - but only apply to cases brought to tribunal after the 1st July deadline.  Existing proceedings are unaffected.

Key points following the legislation include:

  • The regulations apply to a number of unlawful deductions from wages, including holiday pay, bonuses and commission.
  • It does not affect payments such as Statutory Sick Pay, Statutory Maternity, Adoption, Paternity and Shared Parental Pay.
  • The change in no way removes any of the employee's rights to protection provided they bring their claim with the two year limit. With inclusion of the overtime and commission within the holiday pay calculation, employees are in a better position than they were before.

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.

The legislation provides a long stop date which gives certainty to employers, but there is still some uncertainty about whether holiday pay claims must be brought within 3 months of when the holiday was taken.

If you have any queries regarding Backdated Pay claims or how to implement the new legislation please contact Barry Warne on telephone 0114 252 1437 or email

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