Employers counting the cost of Law Lords’ sick pay ruling

Considering the Government’s focus on getting employees back to work, there’s some irony to the recent ruling that what workers really need when they return from long term absence is a holiday!

But this was how the claim by former tax inspectors against HMRC reached its nail biting conclusion in the House of Lords last month.

The Lords’ judgement broadly means that:

• employees on sick leave can take unused statutory holiday on returning to work or receive payment in lieu on termination
• unclaimed statutory holiday at the end of each year of absence can be carried forward (UK Working Time Regulations traditionally mean “use it, or lose it”)
• employees denied holiday pay while on sick leave can claim wrongful deduction from wages. 

Unsurprisingly, the Lords’ decision has sparked fears that employers will have to foot the bill for expensive pay claims from employees – especially as employees can claim for a series of deductions stretching back 6 years.

In fact, as is common with legal musings, the judgement poses more questions than it answers e.g.:

• What about statutory/additional holiday in excess of 4 weeks?
• Can holiday be taken concurrently with sick leave?
• Impact on State benefits/SSP?
• What if the employee has not tried to take holiday?
• Can unused holiday be rolled into a return to work plan?

Employers will seek legal advice but I am also convinced that IFAs will be crucial in helping employers review their policies on sickness and holiday allocation and implement the necessary changes by:

Assessing potential exposure:

• Now’s the time to review any current absentees, especially long term ones.
• Also, it’s worth considering if there’s a risk of claims from former employees.
• Reviewing policy: 
• There’s also an urgent need to audit sickness and holiday policies, including sick pay.
• If long-term sick pay is insured under a Group Income Protection/Permanent Health Insurance policy, check with the provider what their stance is and implement the necessary changes. 

Managing future absence:

• It is essential to manage sickness absence. Failure to do so could result in substantial holiday pay entitlement costs (accrued and/or actual) plus further disruption to the business. 

It is often said that you only know your true friends when the going gets tough.  The Lords ruling gives IFAs the ideal opportunity to be that friend to businesses as they consider the impact of this challenging ruling.