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Holiday pay changes

A recent case with the Employment Appeal Tribunal (EAT) has resulted in success for workers. It was decided that overtime should be taken into account when calculating holiday pay. The finality of the decision is as yet unclear, but if the ruling sticks, then it will have serious financial implications for the companies affected.

Those workers who brought forward the case found themselves at a disadvantage when compared to those working similar hours on full time contracts. Whilst working the same hours, due to their contract they did not qualify for extra paid holidays.

Originally, it was suggested that claims for unpaid holiday pay could reach back six years, however the EAT made the decision that if an unbroken stretch of three months existed between underpayments, then employees could not claim for any period prior.

The Government and business groups such as the CBI and FSB expressed concern regarding the ruling, as it would require any claims to be backdated for the duration of the employee’s time with the company. Barring the three-month rule, this could result in significant charges and it remains unclear to whether or not this ruling would apply to voluntary overtime.

If this were the case, it would require a number of UK employers to change their current business model in relation to staff.

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.

Given the financial implication for companies, it is very likely that any successful ruling will be appealed. Whilst large businesses would be able to absorb the cost, small businesses would be more hard-pressed to adapt to the changes, especially with a properly established workforce.

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