A landmark ruling by the Employment Appeals Tribunal today could see millions of workers entitled to claim back up to 16 years’ worth of extra pay.
The cost of the pay-outs, estimated at hundreds of millions of pounds, could drive some Milton Keynes-based companies and businesses throughout the country to the wall.
Simon Walker, director general of the Institute of Directors, said: “The holiday pay time bomb could have a hugely detrimental impact on businesses up and down the country.
“Some small businesses could end up being wiped out if employers who have acted compliantly and in good faith face underpayment claims backdated as far as 1998.”
The tribunal is ruling on three cases brought by workers on whether overtime should be included when calculating holiday pay. Full-time workers are entitled to at least 28 days annual leave, including bank holidays.
Holiday pay is normally based on basic salary, but the tribunal will decide if it should include overtime payments too. For example, someone may earn basic pay of £16,000 a year but do £4,000 overtime.
Depending on the ruling, their holiday pay could rise as it would be based on an income of £20,000 a year. Commission and bonuses could also potentially bump up holiday pay rates.
An estimated 6.6million adults do regular paid overtime.
UPDATE (3.45pm – 4th November):
Workers have won the ground-breaking case at the Employment Appeal Tribunal to include overtime in holiday pay.
This means some people working overtime could claim for additional holiday pay. Currently, only basic pay counts when calculating holiday pay.
The tribunal also ruled that workers can make backdated claims, but only for a limited period.
However, the ruling could be referred to the Court of Appeal, meaning a final decision may be years away.