Holiday pay ruling - impact on employers
Posted on in Business News
Across the UK, employers could be liable for billions of pounds in backdated pay, some estimates suggest.
A historic legal ruling says 5 million people could be eligible for backdated holiday pay. So, what could this mean for your business?
Workers in the UK are currently entitled to 28 days off a year for which they receive pay. Some employers take into account any compulsory or guaranteed overtime when working out holiday pay, others simply use a worker's basic pay.
Currently, only basic pay is taken into consideration when calculating holiday pay, but millions of workers could be receiving higher rates of holiday pay, after a landmark employment tribunal ruled that overtime should also be considered.
What does this mean for employers?
Should this ruling come into effect, there will be widespread implications for all companies paying overtime to their staff.
The government estimates that one-sixth of the 30.8 million people in work get paid overtime. This means around five million workers could be entitled to more holiday pay.
The bad news for employers is mitigated by the tribunal's decision to limit back payments, so the ruling will not trigger an immediate payment of years of missed pay. The tribunal said that employees can only make a claim if they have taken a holiday within the last three months.
Appeal
It's unlikely that workers will be entitled to any extra pay any time soon. Lawyers say the decision is likely to be appealed, and while it is, employers should sit tight.
The coalition argues that overtime should not be used in holiday pay calculations.
"The government wants to get the right balance between the needs of employers and employees," said a spokesperson for the Department of Business, Innovation and Skills.
"We do not believe voluntary overtime should be included in holiday pay and are concerned about the potential impact on employers.
"We have spoken with business groups and listened to their concerns, as well as intervening in the case to make clear our view."
The case has pitted the government and business against employees and unions.
"The holiday-pay time bomb could have a hugely detrimental impact on businesses up and down the country," said Simon Walker, director general of the Institute of Directors.
"It is not an exaggeration to say that some small businesses could end up being wiped out if employers who have acted compliantly and in good faith face underpayment claims backdated as far as 1998."
He added that employees would be encouraged to apply for holidays after working a lot of overtime, leading to "an administrative nightmare" for companies.