Holiday Headache for Firms Following Tribunal Ruling

4 November 2014

Companies may be at risk of going bust as the Employment Appeal Tribunal has decided that companies should include overtime in holiday pay calculations.  They have yet to release details as to whether this will be backdated but it would be most likely. 

If workers on overtime have been underpaid since as far back as 1998, then larger companies and public sector employers will be owing millions to employees, putting immense pressure on cashflow. In addition, it will increase operation costs for many firms.  As far as the government is concerned the bill for the NHS for instance will be huge.

Chairman of the Federation of Small Businesses, John Allan, has 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.”

While this is great news for employees, certain businesses, especially those in the public sector, will inevitably be affected even if they appeal to the courts. We will definitely see small businesses in severe financial trouble because of this ruling. It is worth noting, however, that if a company owing backdated holiday pay becomes insolvent and is unable to pay, the debt is classed as unsecured. Therefore, under a CVA or administration, the debt can be partially written off and the government will have to make up the shortfall under the legislation up to a maximum of 6 weeks holiday pay.