Overtime should be taken into account when calculating holiday pay, court rules
Overtime, while expensive, has always been a reliable way to ramp up output. A boost in business can mean the standard working week isn't long enough to get everything done so allowing staff to work longer is a good way of meeting demand. But following a groundbreaking Employment Appeal Tribunal case this morning, you may look at overtime a little differently.
A group of three employees have won the case brought against Scottish road maintenance firm Bear Scotland to include overtime in holiday pay. This has set a precedent meaning all people working voluntary overtime could claim for additional holiday pay for additional hours worked, although voluntary overtime is not technically included.
Some estimates suggest as many as 5 million workers will benefit from the ruling. While many workers will overjoyed with the news, thousands of small businesses could be at risk. The Federation of Small Businesses said the ruling could affect about 400,000 firms in the UK, arguing that forcing businesses to hand out holiday pay on overtime was "unfair".
Small firms could be liable for "billions". Commenting ahead of the tribunal's decision, director general of the Institute of Directors, Simon Walker said: “The holiday pay timebomb could have a hugely detrimental impact on businesses up and down the country. It is not an exaggeration to say that some small businesses could end up being wiped out if employers who have acted compliantly and in good faith face underpayment claims backdated as far as 1998.”
“Not only do businesses face a huge spike in operating costs, but employees would also be encouraged to book holidays following bonuses or good overtime periods as it would enhance their pay,” he added.
Reacting to the far-reaching ruling, John Allan, the Federation of Small Businesses 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 were fully compliant with the law as it was understood at the time,” he added.
Neil Pickering, UK marketing manager for Kronos Incorporated, said: "In order to minimise holiday liability moving forwards, UK businesses will need to use overtime more wisely, which means utilising their staff more effectively." He added that improving the flexibility of their workforce, having holistic visibility of staffing across the organisation and multi-skilling the workers will each be necessary components to minimising the amount of overtime used in businesses.
"Employers need to ensure that any overtime worked can be tracked accurately and staff are paid correctly and on time, including their holiday entitlement. It’s time for businesses to stop using overtime as a perk for employees, which costs them millions of pounds each year, and instead focus on becoming more lean and effective," Pickering said.