This is the kind of news which can extinguish even the healthiest post-holiday glow. Business leaders who are fortunate enough to have been enjoying a holiday in recent weeks will have returned to their desks to be greeted by a potentially substantial addition to the cost of doing business.
In Bear Scotland v Fulton, the Employment Appeal Tribunal decided that non-guaranteed overtime is to be included in the calculation of holiday pay under the Working Time Regulations. This is likely to have have far-reaching consequences. It’s more than a HR issue; tax, pensions, payroll and audit professionals will also be affected – and more broadly, so will the competitiveness of UK plc.
It’s also an issue destined to be on the Board agenda for any employer whose workforce’s pay includes components such as commission, overtime, shift premia and output bonuses.
Annual leave is enshrined in EU law as an important protector and promoter of the health and safety of workers. The courts understandably want to remove any obstacles to workers actually taking their holiday. Receiving less pay while on annual leave than would be received if actually working is regarded as a significant deterrent to taking time off.
Claims against employers, which can be made for a limited period of time, could be sizeable, potentially going back to 1998 when the Working Time Directive was implemented in Great Britain. The Bear Scotland decision has at least provided employers with some good news in this regard. It held that any period of 3 payroll months where holiday pay is not underpaid will break the series of deductions which might otherwise have resulted in claims going back several years – potentially to 1998. However, like the rest of the judgement, this ruling will be appealed so the position regarding how far back claims can stretch may yet deteriorate for employers. Where back pay claims are successful, there may also be tax implications.
This ruling is likely to send shockwaves through the British business community and some organisations will be landed with a bill that will materially affect their longer term solvency.
Businesses should be proactive and will need to audit their payment process, have clear data to back up payments and set up teams to deal with grievances. Those who fail to set up transparent systems risk becoming mired in a multitude of tribunal claims. Many employment tribunal claimants are already adding “holiday pay” to their main complaint as a matter of course.
In the long term, it’s suddenly become more expensive to run a business. This change will add significantly to overheads and will require change to an already very complicated process for calculation of holiday pay.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.