4 November 2014

A decision expected from the Employment Appeals Tribunal (EAT), on the calculation of backdated holiday pay for employees who work overtime or receive variable pay, could sound the death knell for some small businesses.

This is the prediction of the Institute of Directors (IoD) which has blamed the problem likely to be faced by small firms on the EU Working Time Directive and on rulings of the Court of Justice (CJEU).

These include the case of Lock v British Gas in which the CJEU redefined holiday pay to include an allowance for commission, on the ground that recipients would otherwise suffer such a loss of pay when on holiday that they might not take all their leave.

The EAT is currently hearing a number of cases in this context, including Bear Scotland v Fulton where employees of the road maintenance company claim that voluntary overtime pay should have been factored into their holiday pay.

IoD Director General 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 under-payment claims backdated as far as 1998."

He warned that employees could find it advantageous to book holidays following bonuses or good overtime periods as it would enhance their pay.

Each successive CJEU ruling was effectively creating new employment law, Mr Walker continued, as the Court interprets and re-interprets the directive.

"Social and employment policy has quietly slipped off the Prime Minister’s renegotiation agenda," he concluded, "and it is clear from these events that it needs to be put back on the priority list."

From Paul Clarke, business writer for Croner