Local business leaders have reacted with shock to a ruling which could see workers being paid extra holiday pay if they do overtime.
The Employment Appeal Tribunal has ruled that overtime should be taken into account when holiday pay is calculated.
It was called in to look at two cases relating to the UK’s interpretation of the Working Time Directive, including one involving workers on a project at the West Burton power station site in Nottinghamshire.
The Unite union said they consistently worked overtime, but that was not included in holiday pay, meaning they received “considerably less” pay when on holiday.
Although the ruling is set to be appealed, it has angered businesses which may see payroll costs soar and claims backdated.
Babs Murphy, Chief Executive of the North & Western Lancashire Chamber of Commerce said: “This ruling is damaging for businesses. Firms could be at risk of incurring significant financial losses, which could force them to close their doors altogether.
“Managers across Britain are now in the difficult position of having to carry out more complex calculations for holiday pay; estimating overtime and commission rates of staff on holidays.
“This expanded definition of ‘pay’ is so ludicrous that the Government itself has argued against it. No business should have to pay more than base salary during holiday periods, unless they elect to do so.
“What businesses fear most is that these judgments will open the door to backdated claims, which could run into the billions.
“Firms which have complied with existing regulations are shocked by the thought of having to back-pay holiday entitlements – a change they could not have predicted.
“The pressure being placed on businesses by both the British tribunals and European courts on the issue of holiday pay is becoming unbearable. After the worst recession in living memory, with many companies working to reverse pay cuts and invest in their employees, giant new pay claims could be a huge blow to their growth prospects.”
Paul Foster, development manager from the Federation of Small Businesses on Blackpool said: “Today’s ruling could be bad news for many small businesses who have, in good faith, followed the rules as they had had them explained.
“Backdating of claims would be significantly damaging for many businesses who are just starting to see things pick up after a long period of struggling to get by.”