How will the holiday pay ruling affect insolvent businesses?

12 November 2014

We recently wrote about the holiday pay ruling by the Employment Appeal Tribunal, which now makes it compulsory for employers to include overtime in holiday pay for employees. 

This will obviously affect businesses in terms of cashflow, causing companies to review and manage their strategies. This only means insolvent businesses will have further problems as cashflow is already very tight and the company is in a difficult situation. The employer, together with the Insolvency Practitioner (IP), will also need to deal with underpayment of holiday pay claims from employees. 

This will be paid in priority to other unsecured creditors, meaning this will not only delay the process for the other creditors but they will likely be paid back a smaller amount too.

While employees won’t be able to claim far back for their holiday pay, it will still have an impact on insolvent companies and they will need to deal with recent claims, inevitably putting a strain on cashflow.  

Often when a company is in a CVA or administration, it will continue trading and some employees will be kept on to help run the business. However, this will mean ongoing holiday pay calculations will need to be considered, another challenge for IPs. It will also be difficult to work out how holiday pay should be calculated, using the guide of ‘normal remuneration.’  

The holiday pay ruling will likely be taken to the Courts for appeal, however insolvent businesses should still prepare for  the added pressures of these new claims.