On November the 4th, Employment Appeal Tribunal (pay tribunal)ruled that employees’ overtime earnings should count towards their holiday pay. Some business groups have vowed to fight back and a legal challenge is likely – but what are the issues and are businesses right to be concerned?
An estimated 5 million UK employees take some form of overtime every week, with rates of pay in excess of their regular hourly wage. However, only regular or average hourly rates, before commission and overtime, are currently considered when calculating holiday pay. For many employees, this leaves them out of pocket if they take any time off.
“For workers who earn much of their income through commission, sales staff, for example, taking time off can mean a real hit on their finances,” explains Charlotte Gallagher of P3 People Management. “For them, and for people forced into working overtime by low wages, this ruling will really help”.
The CBI is calling on government to intervene against the ruling, claiming that the impact on businesses by retrospective pay claims would be damaging to them and to the wider economy. If the challenge goes ahead, as looks likely, it will almost certainly take more than three months.
“Their concerns are understandable – for a small business this could be a blow to their bank balance,” continues Charlotte. “Unlawful Deduction from Wages claims must be submitted to the Employment Tribunal within 3 months, less one day, of the date that the wages were due to be paid. The longer the ruling stands without a challenge, the longer businesses are open to retrospective claims.”
If employers change their contracts to reflect the ruling, however, they could be protected from backdated claims.
Charlotte explains: “If the employee has been paid correctly for three months or more, there can be no claim. If employers address their holiday pay rules pay now, they could be better prepared, whatever the outcome of any legal challenge to the ruling”.
Businesses could also benefit from the added light that this ruling sheds on their own overtime pay practices. If they’re concerned about paying a higher rate for holidays, it may be that businesses will reflect more on the need for overtime. In some cases, it may actually help to identify where overtime could be eliminated due to inefficient working practices, saving the company money.
“The ruling could be seen both ways: either it’s a threat to a firm’s bottom line or an increase in fairness to the employee and an opportunity for the business.”
Whichever it is, businesses are being encouraged to look at their overtime contracts a little more closely.
P3 People Management have a blog on the subject – you can read it here.