Employment disputes do not always begin with dismissal. In 2026, disagreements about holiday pay, deductions from wages and employment status continue to create significant risks for employees, workers and employers.
A person described as “self-employed” may argue that they are legally a worker entitled to paid annual leave. An employee may discover that regular overtime or commission was excluded from holiday pay. An employer may make a deduction believing it is authorised, only to face an Employment Tribunal claim.
This guide explains the three issues, the evidence that matters, the role of ACAS Early Conciliation and the options for resolving a dispute before a tribunal hearing.
Important: Employment Tribunal time limits are strict. This article provides general information about the position in England and Wales as at August 2026 and is not a substitute for advice on individual circumstances.
1. Annual leave and holiday pay disputes
Almost all people legally classed as workers are entitled to 5.6 weeks’ paid annual leave each year. For someone working five days a week, this normally equates to 28 days. Part-time workers are entitled to a pro-rated amount.
The entitlement applies to employees and many workers, including agency workers, zero-hours workers and some people working irregular hours. A genuinely self-employed person is generally not entitled to statutory paid holiday, which makes employment status an important preliminary issue.
The government’s holiday entitlement guidance provides further information on the statutory minimum.
How should holiday pay be calculated?
For most workers, the 5.6 weeks’ leave is divided into two statutory portions:
- Four weeks paid at a worker’s “normal remuneration”; and
- An additional 1.6 weeks that may generally be paid at basic pay.
Normal remuneration may include payments that are regularly received as part of the work, such as:
- Regular overtime;
- Commission intrinsically linked to contractual duties;
- Regular allowances;
- Payments connected with seniority, length of service or professional qualifications; and
- Other recurring payments that reflect what the worker normally earns.
An employer that pays every day of holiday at basic salary, while excluding regular overtime or commission from the first four weeks, may be underpaying holiday pay.
For irregular-hours and part-year workers, leave years beginning on or after 1 April 2024 are subject to specific accrual rules. Statutory leave may be accrued at 12.07% of hours worked in each pay period, subject to the statutory maximum. Employers may also use permitted rolled-up holiday pay arrangements for qualifying irregular-hours and part-year workers, provided the arrangement is correctly implemented and separately identified.
Holiday pay for variable earnings may require an average based on previous paid weeks. The relevant reference period is commonly 52 paid weeks, excluding weeks in which the worker received no pay, subject to the detailed rules.
The official holiday pay and entitlement reforms guidance explains these calculations in more detail.
Evidence to collect
An employee or worker considering a claim should preserve:
- Contracts, offer letters and staff handbooks;
- Payslips and payroll records;
- Holiday requests and approval records;
- Timesheets, rotas and shift records;
- Overtime, commission and bonus statements;
- Emails or messages discussing holiday pay;
- Calculations showing the alleged shortfall; and
- Any final payslip or payment in lieu of untaken holiday.
Employers should maintain clear records of entitlement, leave taken, payments made and the method used to calculate variable holiday pay. Poor records can make it more difficult to explain or defend a calculation.
2. Unlawful deductions from wages under section 13
Section 13 of the Employment Rights Act 1996 generally prevents an employer from making a deduction from wages unless the deduction is:
- Required or authorised by legislation;
- Authorised by the worker’s contract; or
- Agreed by the worker in writing.
A deduction may include money taken directly from pay, but a failure to pay wages that are properly due can also form the basis of a claim. Examples may include:
- Unpaid salary or hourly pay;
- Missing overtime or commission;
- An unauthorised deduction for equipment, training or expenses;
- An incorrect deduction for annual leave; or
- Underpaid holiday pay where the legal requirements for a wage claim are met.
The legal basis of a holiday pay claim must be considered carefully. Depending on the facts, a claim may be pursued under the Working Time Regulations 1998, as an unlawful deduction from wages under the Employment Rights Act, or on a contractual basis.
When is a deduction authorised?
A contractual deduction clause should be clear enough to show what the employer can deduct and in what circumstances. A general statement that the employer may deduct “any sums owed” may not answer every legal question, particularly where the amount or basis of the deduction is disputed.
Employers should be particularly cautious with:
- Salary advances;
- Training costs;
- Overpayments;
- Damage to company property;
- Shortfalls in tills;
- Loans;
- Accommodation or benefits; and
- Deductions made during the final payroll.
A deduction can be unlawful even where the employer believes the worker caused a financial loss. The contract, written consent and statutory rules must be checked.
How much can be recovered?
An Employment Tribunal may order the employer to repay the sum unlawfully deducted. A series of deductions may be treated as connected, but there are important limits on how far back a claim can reach. In many unlawful deduction claims, a two-year backstop applies to a series of deductions, subject to exceptions and technical issues.
A worker should therefore identify every affected payslip and calculate:
- The amount that should have been paid;
- The amount actually paid;
- The difference;
- The date of each shortfall; and
- Whether the deductions form a continuing series.
3. Worker status: employee, worker or self-employed?
The label used in a contract is not always decisive. A tribunal will consider the reality of the working relationship, including how the arrangement operates in practice.
Employee
An employee usually works under a contract of employment and benefits from the widest range of employment rights. These may include statutory notice, protection from unfair dismissal subject to the applicable rules, family-related rights and redundancy rights.
All employees are also workers and therefore have statutory holiday rights.
Worker
A worker generally undertakes to perform work personally for another party, where that party is not genuinely a client or customer of the individual’s own business. Workers have important rights, including:
- National Minimum Wage protection;
- Paid annual leave;
- Protection from unlawful discrimination; and
- Certain other statutory protections.
However, workers do not automatically have every right available to employees.
Self-employed contractor
A genuinely self-employed person is normally running their own business, providing services to clients and bearing a greater degree of financial risk. They will usually control how the work is performed, may provide a substitute and may work for multiple clients.
Self-employed status may be challenged where the individual:
- Must perform the work personally;
- Has little or no right to provide a substitute;
- Works under significant managerial control;
- Is integrated into the organisation;
- Has fixed shifts or continuing obligations; or
- Bears little genuine financial risk.
Status disputes can be complex because different legal tests may apply to different rights. A person may be a worker for holiday pay purposes without being an employee for unfair dismissal purposes.
Evidence in a status dispute
Both sides should examine the entire relationship, including:
- The written contract and any later variations;
- Substitution clauses and whether they were genuinely used;
- Who decided working hours and location;
- Instructions, supervision and performance monitoring;
- Invoicing, tax and payment arrangements;
- Provision of equipment;
- Ability to reject assignments;
- Financial risk and responsibility for correcting defective work;
- Exclusivity and work for other organisations; and
- How the parties behaved day to day.
The question is not simply what the contract calls the individual. It is how the relationship operated.
ACAS Early Conciliation and tribunal deadlines
Most Employment Tribunal claims require the claimant to notify ACAS before submitting an ET1 claim form. This includes many holiday pay and unlawful deduction claims.
ACAS Early Conciliation gives the parties an opportunity to settle without litigation. It is not a replacement for legal advice, and notifying ACAS does not by itself start a tribunal claim.
The usual time limit for an unlawful deduction or holiday pay claim is three months less one day from the relevant payment date, or from the last deduction where there is an alleged series. The time limit may be extended under the Early Conciliation rules, but a claimant should not delay.
ACAS explains the process through its Employment Tribunal guidance and time-limit guidance.
A practical sequence is:
- Identify the date of the last underpayment or deduction.
- Calculate the initial tribunal deadline.
- Notify ACAS within that period.
- Keep the Early Conciliation certificate.
- Calculate the revised deadline carefully.
- Submit the ET1 before the revised deadline if settlement has not been reached.
Missing the limitation period can prevent an otherwise valid claim from proceeding.
Settlement agreements: resolving disputes before a hearing
A settlement agreement can resolve a dispute without the cost, uncertainty and delay of a tribunal hearing. It may provide for:
- A payment for unpaid wages or holiday pay;
- Compensation for disputed losses;
- An agreed reference;
- Confidentiality provisions;
- An agreed termination date; and
- A waiver of specifically identified legal claims.
For statutory claims to be validly waived, the agreement must meet legal requirements and the employee must receive independent legal advice from an appropriately qualified adviser.
Employees should check that the agreement accurately addresses holiday pay, unpaid wages, commission, expenses and the correct termination payment. Employers should ensure the agreement clearly identifies the claims being settled and pays all sums due under the contract and applicable legislation.
When should you obtain advice?
Employees and workers should seek advice promptly if they believe holiday pay has been undercalculated, wages have been deducted unlawfully or their “self-employed” label does not reflect reality.
Employers should obtain advice before changing payroll practices, engaging contractors, making deductions or offering a settlement agreement. Early advice can often resolve a dispute before positions become entrenched.
Tyndel Solicitors advises employees, workers and employers on workplace disputes, wage claims, employment status and settlement agreements. If you are looking for employment law solicitors UK or need advice from unfair dismissal solicitors UK about a connected employment issue, our team can assess the facts and explain your options.
