Holiday pay, but not as we know it! Businesses beware.

What’s all the fuss? First it was commission to be included in holiday pay, now its overtime. The Employment Appeal Tribunal has given its ruling on whether non-guaranteed overtime must be taken into account for the purposes of calculating holiday pay. The EAT has decided that overtime which an employer is not contractually obliged to offer, but an employee is contractually obliged to perform if requested, must be taken into account when calculating an employee’s holiday pay. However, this is the first appeal and there are three more possible appeal stages and it is likely that the employees and employers involved in these cases may look to appeal this judgement.

The “ground breaking” case is a large win for employees who claim they are being underpaid, but businesses warn that the ruling could have “disastrous” implications, the BBC reports. The tribunal also ruled that employees would be allowed to make back-dated claims, but only for a limited time period. There are estimated to be up to five million people in the UK who work voluntary overtime and could benefit from the ruling.

What’s the problem?

Holiday pay is currently calculated on basic pay alone, but unions and employees argue that voluntary overtime and commission payments should also be factored into the amount of holiday pay employees receive, as they make up a large proportion of many employees’ salaries.  Case law has already determined that commission payments should be factored into holiday pay.

 How will it affect employers?

The ruling means that it is very likely that employers will have to change how they calculate holiday pay in future to take account of voluntary overtime.  However it does seem to have limited the scope for retrospective claims, which in the breaking news was the biggest concern in terms of possible costs for employers.

Unsurprisingly the government and businesses are against including a payment in lieu of voluntary overtime in holiday payments, and warned that a ruling in favour of its inclusion would have a significant impact on 400,000 firms in the UK. Businesses could be hit with a massive bill if backdated claims are permitted. It is yet another concern for small businesses and could mean the end of some small businesses if they suffer an underpayment claim which could date back as far as 1998.

“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 IOD.

When will we know the outcome?

Although not an immediate concern for businesses in the UK as the final decision could still be years away as it is likely to be appealed, it is still a serious one. The ruling leaves much uncertainty, but according to Sky News, some of the bigger names on the high street have already begun to prepare for a payout. “John Lewis reviewed its policies this summer and set aside £40m to reimburse workers,” it reported.

HRREV Blogger, HR Revolution | HR Outsourcing UK

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