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Holiday pay ruling could land businesses with debilitating bills

Judgments this week ruled that the calculation of holiday pay based on Working Time Regulations 1998 is not correct. It must now potentially include overtime. 

Commenting on the judgment Ingrid Waterfield, a director in KPMG’s People Powered Performance practice, said:

“This ruling will send shockwaves through the British business community and some will be landed with a bill that will materially affect their longer term solvency.

“There is no doubt that this correction must be assessed and paid quickly to maintain the good will and morale of staff.  However, we must not be na&iumlve: this ruling will have long term consequences for the health of UK businesses.  In order to balance the books, many may need to shelve investment plans in the short term to enable them to pay this bill.  This will dampen growth and potentially impact their competitiveness on the world stage.

“Some will be forced to fund the bill by lowering returns to shareholders and possibly adding more debt to the balance sheet.

“The retail sector will be particularly hard hit, due to the heavy use of overtime and sales commission to compensate customer facing employees. This has been a normal part of the retail environment and has grown even more prominent with the use of zero hour/flexible working contracts over the recession. 

“In order to preserve good will, employees must be able to trust that businesses are taking swift action to assess and resolve this situation.  Companies will need to audit their payment process, have clear data to back up payments and set up teams to deal with grievances.  Those who fail to set up clear and transparent systems risk becoming mired in a multitude of tribunal claims from current and past employees.

“In the long term it has suddenly become a lot much more expensive to run a business. This change will add significantly to overheads and will require operational change to an already very complicated process for calculation of holiday pay, whilst simultaneously allowing for a fund to pay backdated claims and the resource involved in settlement discussions over time with unions.”



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