New holiday pay ruling on overtime

December 5, 2014

In a ground-breaking case the Employment Appeal Tribunal (EAT) has ruled that employers must take overtime into account when calculating holiday pay, a decision expected to benefit up to 5 million employees.

Those who regularly work overtime are likely to see an increase in their holiday pay, as non-guaranteed overtime they would otherwise have worked must now be included up to the first four weeks of holiday taken.

The Government is mitigating the effect this could have on employers, with workers allowed to retroactively claim for only three months holiday pay.

Business Secretary Vince Cable said: ‘The Government will review the judgement in detail as a matter of urgency. To properly understand the financial exposure employers face, we have to set up a taskforce of representatives from Government and business to discuss how we can limit the impact on business. The group will convene shortly to discuss the judgement’.

The taskforce reportedly includes business groups such as the Institute of Directors (IoD), the Federation of Small Business (FSB), the Consortium of British Industry (CBI), and the British Retail Consortium.

CBI Director General, John Cridland, said: ‘This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds – and not all will survive, which could mean significant job losses’.

Businesses are likely to take steps to minimise the financial impact for themselves, with many facing the possibility of using part-time agency staff to cover overtime, or changing contracts to include ‘voluntary’ overtime as opposed to ‘non-guaranteed’ overtime. With such measures in place, the impact to workers in the long run may be negative despite their increased holiday pay.

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