LONDON (Reuters) – A British employment tribunal ruled on Tuesday that companies should factor in overtime when calculating workers’ holiday pay, a decision that employers’ groups warned could put some smaller firms out of business.
A small group of workers had brought cases against three companies arguing that their holiday remuneration was far less than their usual pay because it did not include overtime.
The Employment Appeal Tribunal backed their claims, concluding overtime should be considered part of normal pay. Britain’s biggest union Unite said the verdict could lead to other similar claims and payouts of thousands of pounds.
“Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to,” said Howard Beckett, the union’s executive director for legal, membership and affiliated services.
It is estimated that about one-sixth of Britain’s 30 million workforce receive overtime pay and employers said the decision could lead to soaring and damaging costs. Overtime is a sensitive issue because British wages have not kept pace with inflation despite falling unemployment and economic growth.
The government said it would also review the judgement as a matter of urgency. “This ruling is damaging for businesses across the UK. Firms could be at risk of incurring significant financial losses, which could force them to close their doors altogether,” said Adam Marshall, Executive Director of Policy and Public Affairs at the British Chambers of Commerce.
EEF, the body which represents manufacturing firms, said 93 percent of manufacturers would see payroll costs increase, with many expecting it would impact on future pay deals, overtime, investment plans and training.
“It’s clear that many businesses will now be left facing difficult choices, despite having always complied with UK law, and there is a real danger that this ruling could ultimately hit jobs, pay and future investment,” said Tim Thomas, Head of Employment Policy at EEF. Business groups had expressed concern that the ruling could lead to backdated claims for pay, potentially leading to massive retrospective payouts.
However, Andrew Stones, from law firm Squire Patton Boggs which represented two of the employers involved in the ruling, nsaid this would not be case as the judgement placed tight limits on retroactive claims. Employers’ concerns about huge claims for back holiday pay “should largely be alleviated following the judgment,” he said. Business Secretary Vince Cable said government departments would meet with business groups to look at the issue. “To properly understand the financial exposure employers face, we have set up a taskforce of representatives from government and business to discuss how we can limit the impact on business,” Cable said in a statement.