Tribunal rules overtime should count towards holiday pay
The Employment Appeal Tribunal has ruled that overtime should count towards holiday pay in a move that could potentially cost businesses billions of pounds.
The groundbreaking decision means workers who have worked voluntary overtime will be able to claim for additional holiday pay.
This differs from the current situation where only basic pay counts towards holiday pay and workers will now be able to backdate claims for a three-month period.
The decision is likely to be appealed at the Court of Appeal meaning a final decision on the matter could be many years away.
Around five million small businesses may be affected by the ruling, according to the Federation of Small Businesses, and it is thought the decision will force companies to cut levels of overtime and long hours, with government estimates suggesting one sixth of the working population – totaling 30.8m people – get paid overtime.
Retrospective claims could place a great deal of financial pressure on smaller firms who do not have additional levels of finance to cover the potential payments.
This has led to fears that businesses could shut down – which would also increase job losses and uncertainty in the marketplace.
Some businesses could seek corporate insolvency solutions but the ability of an individual firm to recover would depend on their own situations.
The Confederation of British Industry has called on the government to act to protect businesses from retrospective liabilities that they may face.
According to the FSB, one third of SMEs paid their staff voluntary overtime in the past year while one in ten offered some form of commission.
This potentially means that the latest ruling could impact up to 400,000 small businesses in the UK who will now need to review their payment structure.
If the ruling were to be backdated for a considerable period of time some companies could even see their employees making multiple claims that go back many years.
As a result businesses could potentially be hit with a bill they could not have foreseen, although any government rulings could prevent this from being the case.
By Phil Smith