295,000 workers face cap on overtime in wake of landmark holiday pay ruling

The snap poll of 285 small businesses conducted by the business software and services provider found that one in ten small firms across the country will limit the amount of overtime that people can take equating to 40,000 small businesses.

An estimated five million workers will be affected by the decision by the UK Employment Appeal Tribunal (EAT) according to the Department for Business, Innovation, and Skills.

The ruling, made on November 4th, stated that under Working Time Regulations (WTR) non-guaranteed overtime should be factored in when calculating the amount of holiday pay that an employee is entitled to. Bosses must now factor in the 12-week period prior to a holiday when calculating holiday pay.

Furthermore, employees now have a right to back-claim for wages which were not previously factored in, potentially costing businesses thousands of pounds in backdated claims. 

When the changes were explained to the respondents, two-thirds of business owners (62%) did not agree with the ruling. A further 29 per cent are concerned about the impact the ruling will have on their business, and 12 per cent said they were not aware of the ruling.

Lee Perkins, Managing Director of Sage UK’s Start-up and Small Business Division said:

“The holiday pay ruling will undoubtedly create new challenges for businesses paying staff that regularly take overtime paid hours. The complexities mean a significant number of business owners are in the dark as to what to do next. This will be more clearly felt by small firms which do not have the same resources as larger businesses to easily make adjustments. 

“However, the holiday pay ruling does not need to be the administrative burden that it may first seem. With a robust payroll system in place, businesses will be able to easily calculate the amount they should be paying their employees when taking holiday time moving forward. 

“The potential impact on payroll teams and future cashflow is huge, so our advice is to always plan ahead and start getting your house in order now to avoid being caught out. Our priority is to communicate to our customers and reassure them that we will support them through this change.”

What impact do you think these changes could have on your business? Are they preventing you from starting your own business? We'd love to know your thoughts in the comments box below! 

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