Tribunal overtime ruling troubles SMEs » SMEInsider

Tribunal overtime ruling troubles SMEs

Including overtime in calculating holiday pay will require additional payroll and national insurance costs for businesses of every size – but small businesses are likely to feel the brunt of the changes if not given adequate support.

The government has announced plans to create a taskforce to consider the consequences of the Employment Appeal Tribunal’s landmark Nov. 4 ruling requiring British employers to include overtime in calculating holiday pay. This is likely to be welcome news to small businesses, who face serious financial difficulties in implementing this new ruling.

SMEs often pay lower basic salaries but use commission and performance-based pay to reward staff who contribute to business growth. A survey by the Federation of Small Businesses (FSB) also suggested that around a third of small businesses offer paid overtime. Having to include these extra payments even when staff are not at work is a real financial blow to small businesses.

The FSB has already warned that companies will need to make redundancies and could even be forced to close. Businesses will also be concerned about the additional cost and management time involved in reviewing their employment contracts and working practices and rejigging payroll systems – a real burden for businesses without a large HR team.

The realisation of this ruling in practice, however, may not be as financially crippling as initially thought. The additional elements only need to be included in holiday pay for the four weeks of annual leave guaranteed under EU law, and not the additional 1.6 weeks required under UK law (or, indeed, any additional contractual holiday). It is also unlikely, given the employment appeal tribunal’s ruling, that workers will be able to backdate holiday pay claims by more than a few months.

But with corporations and trade unions both able to appeal, this is likely to be a difficult battle, with SMEs stuck in the middle.