Holiday pay ruling: Key considerations for small businesses

Many business owners may now face back-dated claims for underpaid holiday. For small businesses this will cause them a real headache in their planning and potentially cripple their cash flow.

The Employment Appeals Tribunal has given permission for its decision to be appealed, so things may still be up in the air. However, Lee Perkins is advising businesses to act now with the following steps:

  • The impact of a ‘small business timebomb’ is likely to be less severe than feared. Employees may appeal for backdated holiday pay claims, but will not be entitled to them if there has been a gap of more than three months since they received their holiday pay. 
  • To help prepare for any past and future claims,  a business should make sure it has a robust payroll system in place to ensure staff are being paid the correct amount. On top of this, it will create a proper audit trail which can help alleviate the administrative burden in the event of a claim.
  • Many businesses will be asking: ‘How much extra will a business have to pay staff?’ This depends on how much overtime your staff work on a regular basis. The payments to employees will be based on average total wages, much in the same way as employers have to calculate the average pay of their workers to ensure they comply with the minimum wage rules.
  • Sage is advising businesses to take immediate action. Owners need to prepare for this new ruling straight away to ensure your business and employees are covered. This means starting to include overtime and commission into your holiday pay calculations with immediate effect. This can be managed within a robust payroll system.

He added: “Businesses need to look carefully at this ruling and plan appropriately. The potential impact on payroll teams and future cashflow is huge, so our advice is to 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.” 

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