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Holiday pay tribunal cases could put firms out of business

11 July 2014 by Alexandra Jones

Tribunal cases challenging the normal calculation of employee holiday pay could burden UK businesses with huge additional costs, posing a significant threat to their existence, according to the Confederation of British Industry (CBI).

Under the Working Time Regulations (WTR) holiday pay in the UK is currently calculated on the basis of a ‘week’s pay’ – based on basic salary and excluding payments such as working allowances, expenses, overtime, commission and bonus payments, all of which refer to specific work done by someone while performing their duties.

However, a recent European Court of Justice (ECJ) judgment redefined holiday pay to include an allowance for commission, despite the fact that commission is paid on sales made and the employee would not have delivered those sales while on holiday. 

If liabilities on holiday pay are backdated, individual firms may face bills of tens of millions of pounds. Some medium-sized businesses have told CBI that backdated claims could push their otherwise profitable businesses into insolvency, resulting in significant job losses.

Katja Hall, CBI Deputy Director-General, said: ‘Businesses that have done the right thing and fully complied with UK law suddenly face the threat of substantial additional costs. And the companies most at risk are in vital sectors for our economy, such as manufacturing, construction and civil engineering.

‘Moving the legal goalposts in this way is unacceptable. Although most businesses believe we are better off in a reformed EU, there is a real danger of expansive decisions being made by the European Court of Justice on the UK labour market. As part of an EU reform programme, this has to be addressed and it’s time to put a stop to back-door EU employment law being made.

‘We need the UK Government to take a strong stand and do all it can to remove this threat. Otherwise we face the very real prospect of successful firms in this country going out of business, with the jobs they provide going too.’

UK businesses currently face an anxious wait to see how the UK courts interpret the ECJ decision on commission, and on the outcome of related tribunals on how holiday pay should be calculated to account for overtime. Other related issues such as backdated tax and pension contributions could also be raised. The potential long-term effects of any changes are hugely significant and include reduced ability to deliver major infrastructure projects, loss of overtime for staff and a negative image for the UK as a place to invest.

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