Firms could face holiday pay claims

Published: Tuesday 4th November 2014 by The News Editor

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Companies face a multibillion-pound bill which could put some out of business if a tribunal ruling paves the way for mass claims for backdated holiday pay, firms have warned.

A decision is expected today from the Employment Appeal Tribunal on two cases relating to the UK’s interpretation of the Working Time Directive.

The cases centre on whether overtime should be taken into account when holiday pay is calculated.

Simon Walker, director-general of the Institute of Directors, said: “The holiday pay timebomb could have a hugely detrimental impact on businesses up and down the country.

“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.

“Not only do businesses face a huge spike in operating costs, but employees would also be encouraged to book holidays following bonuses or good overtime periods as it would enhance their pay. This would be an administrative nightmare on a number of fronts.

“Long after it was agreed, the EU Working Time Directive continues to pose a significant headache for businesses. New employment law is effectively being created at a stroke with each successive ruling from the European Court of Justice interpreting and re-interpreting its contents.

“Social and employment policy has quietly slipped off the Prime Minister’s renegotiation agenda, and it is clear from these events that it needs to be put back on the priority list.”

John Allan, chairman of the Federation of Small Businesses, said: “These rulings could have a significant cost implication for those businesses that pay voluntary overtime or commission and firms will need to look at how they structure pay and overtime.

“However, our biggest concern would be the threat posed by backdating the ruling. This could trigger multiple claims going back many years and create substantial unexpected cost liabilities for employers.

“It seems extremely unfair that businesses who have tried to do the right thing – getting the best legal advice at the time – could be hit with a bill which no one knew was coming. Government need to make sure that good employers, supplying much-needed jobs, are not forced under by a series of backdated claims.”

The manufacturers’ organisation EEF has calculated that small to medium sized firms with a turnover of £30 million could have to pay an average of £2.5 million in backdated holiday pay, plus £250,000 for National Insurance and pension contributions.

Barry Smith, legal officer of the GMB union, said: “We hope the ruling will clarify the elements to be included in the calculation of holiday pay.

“For many workers, overtime, shift payments, unsociable hours payments and other allowances are currently excluded from their holiday pay and they should be included.”

A Business Department spokesman said: “The Government wants to get the right balance between the needs of employers and employees. 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. Once we know the result of the judgment, we will consider the details and what action, if any, the Government should take.”

Published: Tuesday 4th November 2014 by The News Editor

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