Holiday Pay Ruling Threatens Big Business Bill

By Poppy Trowbridge, Consumer Affairs Correspondent

Businesses could face a big bill for backdated holiday pay if a ruling by the Employment Appeals Tribunal, the UK's top employment law court, goes against them.

The cases before the tribunal involve two engineering companies, Hertel and Bear Scotland.

Workers for these companies claim their holiday pay was less than it should have been because their employers did not factor in voluntary overtime completed in the period prior to time off.

Holiday pay is averaged from the basic wage ahead of the time off and currently does not include what is earned in overtime, or commission.

A case being heard later in the year will look at whether commission should also be factored into rates of holiday pay.

The issue could be tied up in European and UK courts for years to come, but some of the high streets bigger business names have begun to prepare for a payout.

John Lewis reviewed its policies this summer, and set aside £40m to reimburse workers.

The Department for Business says voluntary overtime should not be included in holiday pay and it recognises the potential impact on employers.

"We understand the deep concern felt by many employers and have intervened in the Employment Appeal Tribunal cases to make our views clear," a spokesperson said.

Business groups are calling on the Prime Minister to make this employment policy a priority.

Employers are worried about the cost of backdating the ruling to 1998 - when Brussels put in employment restrictions.

Simon Walker from 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."

The EU's Working Time Directive took effect in 1998.

Employment solicitor, Jessica Learmond-Criqui, said: "If one wants to be a good employer and is using good practice, one would want to be collaborative with employees and reach some sort of agreement to settle any back claims so that you've got certainty, because certainty is so important for business."

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."

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