The Employment Appeal Tribunal Rules That Overtime Should Count In Holiday Pay.

As accountants, the one news story that stood out for us last week was the news that workers have prevailed in a ground-breaking case.

The said case brought before the Employment Appeal Tribunal which sought to ensure that overtime is included in holiday pay. Why is that so important you may wonder? Well, it’s important because of the financial ramifications this ruling might have for employers. As a result of this ruling from now on all staff working compulsory overtime will be able to claim for additional holiday pay.

The tribunal ruled on three cases – road maintenance company Bear Scotland v Fulton, engineering firm Amec v Law and industrial services group Hertel v Wood. The employees won their original claims and the tribunal has now rejected the companies’ appeals.

So why did the employees bring these cases to the tribunal? Well, under the current UK- interpretation of the EU-wide Working Time Directive, in particular the Working Time Regulations implemented in the UK in 1998, only basic pay counts in the calculation of holiday pay. However, the tribunal decided that the Working Time Directive had been incorrectly applied, and overtime should have in fact been included when calculating holiday pay. This means some people working overtime could claim for additional holiday pay. The tribunal also ruled that workers can make backdated claims, but only for a limited period: not back to 1998 as was previously feared. However, it should be noted that the ruling could yet be referred to the Court of Appeal, which means that a final declaratory judgement on the matter may yet be years away.

Why is this ruling so important? Well, simply because of the number of workers who could potentially make a future claim against their employer.

According to the official ONS breakdown, of the 30 million working adults in the UK, 5 million people do compulsory or voluntary overtime. Of those 23% of men working full-time and 15% of men working part-time do overtime: whilst 12% of full-time working women and 15% of part-time working women do overtime. As accountants we know that this could have widespread financial implications for many UK businesses as a result of this ruling, particularly for the construction, retail and hospitality/leisure sectors, where paid overtime and shift allowances are common.

The legal profession is in broad agreement that the tribunal’s ruling has widespread implications for companies where staff are required to do overtime as a regular part of their job, that is compulsory overtime. However, many lawyers are still uncertain whether the tribunal’s ruling applies to workers doing voluntary overtime.

The Trade Unions, however, were understandably happy with the tribunal’s ruling, with Howard Beckett of the Unite Union claiming:

“Up until now, some workers who are required to do overtime have been penalised for taking the time off they are entitled to. This ruling not only secures justice for our members who were short changed, but means employers have got to get their house in order.”

The reaction from government and business was naturally somewhat less enthusiastic. The coalition government and business groups had argued strongly that overtime should not be included in holiday pay calculations. They were particularly concerned about a raft of back payments potentially going back many years. However, backdated claims have been limited, with the tribunal ruling that employees cannot claim more than three months after the last incorrect payment.

Speaking after the ruling, Business Secretary Vince Cable said:

“Government will review the judgment in detail as a matter of urgency,” he said.
“To properly understand the financial exposure employers face, we have set up a task force of representatives from government and business to discuss how we can limit the impact on business.”

The CBI director general, John Cridland, however, was more forthright in his criticism:
“This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds – and not all will survive, which could mean significant job losses.”

“This judgment must be challenged. We need the UK government to step up its defence of the current UK law, and use its powers to limit any retrospective liability that firms may face,” he added.

So what is likely to happen now?

Well, given the huge financial implications of the ruling, it seems likely that employers will lodge an appeal. According to Jean Lovett, employment and incentives partner at the law firm Linklaters:

“The potential financial implications for many employers will be significant. We envisage that the tribunal’s decision will not be the last word on this issue. As significant sums are involved, we expect the decision to be appealed.”

“Due to the costs involved, many employers may now look to reduce the availability of overtime, where feasible,” she added.

For more information about the ground-breaking tribunal ruling and how it might impact on your business, call Steven Glicher accountants on 0161 485 8007 or email info@stevenglicher.co.uk

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