Workers have won a landmark case at the Employment Appeal Tribunal (EAT) to include regular overtime in holiday pay. Under EU law, workers are entitled to 4 weeks holiday pay per year, however there are no details on how this should be calculated.
The UK government has until now interpreted the EU ‘Working Time Directive’ as holiday pay should be at an employee’s basic rate of pay – meaning any additional payments for regular overtime aren’t included. Most employers have therefore not included regular overtime in their calculation of holiday pay.
The tribunal ruling suggests that the government and UK companies have been interpreting the EU directive wrongly. The Employment Appeal Tribunal ruled on 3 test cases against:
Amec (engineering company)
Hertel (industrial services firm)
Bear Scotland (maintenance company)
The staff at these firms indicated they consistently worked overtime, but that was not included in holiday pay – meaning they received considerably less pay when on holiday compared to when they were working.
Overtime Holiday Pay Reaction By The FSB
Federation Of Small Business (FSB) Regional Chair Nicky Goringe Larkin speaks to Phil Kennedy on BBC Radio Berkshire over impact to small business of this new ruling.
The transcript can be seen below.
[Phil] Nicky Goringe Larkin is the chairman of Reading and West Berkshire’s Federation of Small Business. Let’s get some reaction. Hello there Nicky.
[Nicky] Hi Phil.
[Phil] I imagine some business are thinking that this is not terribly good news, though workers are.
[Nicky] There are a lot of businesses out there that are now extremely worried. There’s confusion about how it could potentially impact them, whether it will impact them. Even if they find that it doesn’t impact them, it’s still a worry – the cost of getting advice to find out if they have got potential claims against them. It’s just a complete nightmare for employers.
[Phil] And it’s not like I just alluded almost in a jokey way that I’m a freelancer so I don’t actually come in that bracket – but you can see a lot of companies saying ‘I wonder if there is a way of putting them all on freelance contracts because that may be a way of dealing with it’ – but again I imagine legally that’s also very tricky.
[Nicky] No I wouldn’t recommend doing that. As an accountant myself I certainly wouldn’t recommend that. You might have a whole other bundle of problems if you do that. What it will impact, and how employers may respond now is they may end up thinking off freezing work and not allowing overtime for a while because it is too tricky to administer. It could also mean that employers may think that ‘I’m just not going to be able to pay for that extra so I’m either going to have to freeze any new additional employment or stop pay rises etc’. If there are going to be claims for people going through that money has to come from somewhere, and the worst case scenario is that it could put some companies out of business. Especially if they have hugely complex employee structures with various different flexible working contracts – it could can get very complicated and could be very expensive.
[Phil] Yes I’m sure. And obviously businesses are worried but given what you have just said, what seems to be a money bonus for workers may end up being more of a problem because , as you say companies may look at overtime and say ‘do you know what, I might not do overtime’ and people may be relying on those overtime payments just to pay their bills. So they may actually lose out ultimately.
[Nicky] Absolutely. And also it’s particularly unfair on the employers that are being considerate and paying overtime. There are a lot of employers that do just make their employees just work a lot harder without paying overtime. Yet it’s the ones that are being good and are paying overtime that could be potentially penalized in this situation. So it could quite easily be that lots of people might be getting the overtime that they are expecting to pay for all their Christmas presents!
[Phil] Wow, alright so, whatever happens you will be looking at this appeal.
[Nicky] Absolutely, we are going to have to take a really fine look at it. Luckily the FSB have been appointed onto the government task force so we will have a voice in this. But it’s extreme really as there is enough legislation already that we have to worry about and in this instance the employers have been up to now complying by the legislation so it’s really worrying if something is potentially going to be back-dated, it’s very difficult to predict the sort of things that could happen. So could cause huge problems for businesses.
[Phil] Whatever happens, it’s not going to happen in a hurry. Nicky, thank you very much indeed. Nicky Goringe there with her thoughts on that.
Official FSB Press Release
FSB says holiday pay ruling leaves many questions unanswered
Reacting to a far-reaching ruling from the UK Employment Appeal Tribunal (EAT), John Allan, FSB National Chairman said:
Today’s ruling leaves many questions unanswered. It has the potential to be very damaging to small businesses, presenting a real risk of small firms being forced to close down if faced by retrospective claims.
Clearly it would be desperately unjust to expect businesses to pay retrospective compensation for how they calculated holiday pay when they where fully compliant with the law as it was understood at the time.
The FSB has been appointed to a Government taskforce to examine this issue and will be fighting hard for small businesses to be insulated from the uncertainty and legal risks this ruling brings.
A recent survey of FSB members found that a third of small businesses with employees (31 per cent) paid staff for voluntary overtime. One in 10 (11 per cent) of small firms with staff also offered some form of commission.
Don’t miss out on the opportunity to receive a free, no-obligation consultation tailored to your business needs. Contact us today to learn more about our comprehensive range of accounting services.
We highly value your feedback and are eager to address any questions, comments, or concerns you may have. Reach out to us through the contact options below, and our team will promptly respond to your inquiry. Take the first step towards maximizing your financial success by contacting us now.