Holiday overtime ruling ‘could cost companies thousands’

Nightmare scenario of expected dash for cash could break businesses

This week’s Employment Appeal Tribunal ruling that overtime should be taken into account when calculating holiday pay has been greeted with delight by employees expecting a cash windfall, but with horror by companies fearing for their financial future.

What’s made it worse is that the EAT judgement says that claims could possibly be backdated to 1998, costing businesses an average of £10,000 per year before court costs are taken into account, a leading employment law consultancy says.

According to the consultancy, this represents a devastating attack on hard-put companies which could eventually end in business closures and job losses.

“If I was a director of a company where employees regularly work overtime, I’d be genuinely worried for the future,” says Protecting spokesperson Mark Hall. “But our first advice would be not to panic.”

Protecting says that the first priority of any business leader in the wake of the EAT ruling is to ascertain whether they might be liable for any claims.

• Not every company that has paid overtime will be liable
• Only companies with regular settled patterns of overtime should face claims, and even then claims should be assessed on a case-by-case basis
• Overtime worked on an ad hoc basis won’t count toward holiday pay

Government statistics show that out of approximately 30.8 million people in employment in the UK, 5million work compulsory or voluntary overtime. Claims for holiday pay will swing on whether overtime is a regular occurrence or not, even if overtime is not agreed by contract.

“Every company is different, and there may be a borderline between what counts as ‘regular’ overtime and what doesn’t,” says Hall, “And that’s why the right employment law advice is crucial.”

“We think that the average bill for a moderately-sized company will be around £10,000 annually,” says Hall. “But that could go through the roof if they end up having to defend their position in court.”

Hall says that bosses may have to find budgets for two major expenses:

• Paying out successful claims
• Legal and operational expenses to investigate claims going back as far as 1998

It’s the administration costs that will be the “silent killer” for many companies, Protecting says. Even modest-sized companies will have to set up units or sub-contract work to investigate potential claims stretching back up to 16 years. This is the nightmare scenario for directors who have steered their organisations out of a double-dip recession.

“While it’s a major victory for workers, it’s going to put some companies seriously at risk,” Hall says.

“Directors can set their minds at ease today by seeking out the right advice on the way ahead.”