Holiday pay ruling set to create headache for businesses say law firms

YESTERDAY’S ruling that overtime should be included in holiday pay calculations could lead to an influx of claims from employees, Midlands law firms are claiming.

Darryll Thomas, an employment law specialist at The Wilkes Partnership, suggests the ruling is likely to have a big impact on businesses.

“There are wide-ranging impacts on UK businesses. Moving forwards, employers will need to carefully examine all components of employees’ pay, including overtime payments, to check whether they should be included in holiday pay calculations,” he said.

“Employers will need to ensure that all guaranteed, as well as certain non-guaranteed, overtime is included as a result of today’s ruling.

“It is likely that employers will now face an influx of claims from employees for historic holiday payments, where employees’ calculations of holiday pay only included basic pay and not overtime.

“It was initially feared that such claims could go back as far as 1998, when Working Time Regulations were implemented. However, following a successful appeal, such claims can only be made in respect of an on-going loss, making it difficult to link together different holiday pay periods as one on-going series of deductions.”

Kate Hodgkiss, an employment partner at law firm DLA Piper, said the ruling will ultimately lead to higher wage bills for employers in the future, but agrees with Thomas that the judgment significantly limits the potential for back pay liability for employers.
 
“Any claims in respect of underpaid holiday pay in the past are only possible to the extent that no more than three months elapsed between any such underpayments – in practice this is likely to mean that employees can only claim in respect of one leave year rather than, as had been a possibility, in respect of all underpaid leave as far back as 1998,” she said.

“The immediate effect of the decision is that the four weeks’ leave required by the Working Time Directive and the additional 1.6 weeks’ leave provided by the Working Time Regulations are payable paid at different rates.

“This will cause administrative headaches for employers and in the long run the Government may seek to remove the distinction between the two; however, this is unlikely to be a legislative priority before the election.

“Employers will need to decide in the short term whether to pay holiday at different rates or to pay all leave at the same rate.”

Jerry Blackett, chief executive of Greater Birmingham Chambers of Commerce said the ruling had potentially very damaging consequences to businesses across the region.

“Our most recent Quarterly Economic Survey shows that Greater Birmingham firms are looking to take on staff but often face recruitment difficulties.   This ruling could serve as a disincentive for companies wanting to recruit because of the risk of increased labour costs,” he said.

“Unemployment rates in the region are twice the national average in some instances and the labour market situation is very tentative so (the) ruling will not be welcomed by many businesses.”