Taskforce launched to assess holiday pay ruling

Tuesday 4 November 2014

The Department for Business, Innovation and Skills (BIS) is launching a taskforce to assess the impact of a recent ruling on holiday pay.

It was ruled by the UK Employment Appeal Tribunal that holiday pay should also reflect non-guaranteed overtime. This follows a previous decision on the matter within the European Court of Justice. The ruling decides how much businesses are liable to pay for holiday pay in cases where employees tend to earn more money on top of their salary as a result of volunteering for overtime.

Among those that will be affected by the ruling are limited companies that hire one or more extra members of staff. As a result, these firms may wish to turn to accounting services to work out how much they might owe. It is expected that similar rulings may follow for commission payments.

BIS will be leading the taskforce, which includes representatives from the Confederation of British Industry (CBI), EEF the Manufacturers' Organisation, the Federation of Small Businesses (FSB), the Institute of Directors (IoD), British Chambers of Commerce (BCC), the British Retail Consortium and the Civil Engineering Contractors Association. Government departments will also be involved with the taskforce.

The taskforce is intended to provide a forum where methods of limiting the impact that the ruling will have on businesses can be discussed.

FSB has already issued a statement saying that thousands of businesses could be negatively affected by the ruling. It added that if the ruling is backdated then it could cause huge, unexpected cost liabilities for employers.

A previous survey by FSB found that 31 per cent of small businesses had paid staff for voluntary overtime. Additionally, one in 11 small firms who employed staff also offered some form of commission. FSB predicts that up to 400,000 small businesses in the UK could be affected.

Speaking about the ruling, FSB National Chairman John Allan 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.

Carl Henning, senior solicitor with Brookson Legal Services noted that “businesses got a some reprieve from excessive claims being made against them as the ruling only allows employees to make a claim going back three months. Whilst this is of little comfort to businesses on the sharp end of such a claim, this is a sensible approach by the court in striking a balance between conflicting interests of businesses and workers.”

Upon the announcement of the new taskforce, business secretary Vince Cable stated that the government will be reviewing the judgement "as a matter of urgency".

He added that it was necessary to set up the taskforce so that the government could properly understand the kind of financial problems that businesses will face and discover ways to limit the impact on these firms will endure.

Previously, the UK government has argued that overtime should not be included in holiday pay. It will therefore be interesting to see the government’s response to this ruling.

By Victoria McDonnell

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