The Employment Appeal Tribunal’s decision offered some comfort to businesses by ruling that workers will not be able to backdate their claims back to 1998 as previously feared.
But Alex Mizzi, an Associate in the Employment Department at law firm Howard Kennedy LLP said: “Businesses will now need to base holiday pay on an average of actual earnings , rather than on basic salary as currently permitted under UK law. This decision imposes major additional costs on UK businesses and a significant administrative burden.”
“Today’s decision follows a line of CJEU cases indicating that holiday pay must be at a similar level to normal pay and must include all elements of the worker’s pay which are ‘intrinsically linked’ to their duties, so that workers aren’t discouraged from taking holiday.”
The Employment Appeal Tribunal case – Wood v Hertel (UK) Limited - applies to the four weeks of annual leave guaranteed under EU law, and not the additional 1.6 weeks required under UK legislation.
However, the EAT found that workers could not backdate their claims back to 1998 as had been feared; instead in many cases claims will be limited to backdated holiday pay for the last 3 months.
'Limits financial exposure'
“The amounts involved could have added up very quickly,” said Mizzi. “John Lewis had to pay out £40 million to staff last year because of the way it had been calculating holiday pay. Other businesses will be relieved not to crippling bills for backdated pay, as well as the administrative headache of trying to calculate what was owed – particularly tricky if the business had changed hands. This issue has been complicating business acquisitions; this case clarifies the law and limits the financial exposure.”
Association of Licensed Multiple Retailers chief executive, Kate Nicholls said: “The licensed hospitality sector is a first class employer, providing opportunities for both temporary and permanent work. Steps such as this, which penalise employers after the fact, are unhelpful, particularly when businesses will have complied with rules and acted in good faith.
“Businesses in the licensed hospitality sector already invest considerable amounts of time and money in their staff. The ALMR’s Benchmarking survey shows payroll costs at an average of 24.2% of turnover, a sizeable increase from 17% in 1999.
“Additional costs and retrospective claims have the potential to derail investment in staff and hamstring business investment in other areas.”