Firms could be forced to pay extra pension contributions as a result of the landmark ruling on workers’ rights to holiday pay.
Earlier today, the Employment Appeal Tribunal ruled in two separate cases that firms were wrong to exclude two employees’ overtime payments when calculating holiday pay.
Law firm Pinsent Masons says the decision should sound “alarm bells in boardrooms” and could impact pension schemes where variable pay is included in pension contributions.
Head of pensions Carolyn Saunders says: “The decision could affect those pension schemes that include variable elements, such as bonus and commission, in the pay that is used to calculate benefits and contributions.
“There will be no impact on schemes that use only basic pay to do this. Both defined benefit and defined contribution schemes could be affected. The administrative costs of sorting out the past underpayments could be significant.”
The tribunal said the Working Time Directive – an EU rule that sets working rights – could be interpreted so that overtime pay is treated as normal remuneration and is to be included in holiday leave calculations.
Both the CBI and IoD warned the cost of implementing the ruling could run into billions of pounds and force some companies out of business.
CBI director-general John Cridland says: “This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds – and not all will survive, which could mean significant job losses.
“These cases are creating major uncertainty for businesses and impacting on investment and resourcing decisions.
“This judgment must be challenged. We need the UK Government to step up its defence of the current UK law, and use its powers to limit any retrospective liability that firms may face.”