Firms could be forced to pay up to £100m a year in extra pension contributions after a controversial ruling on holiday pay.
PwC pensions partner Peter McDonald says businesses may need to fork out additional pension payments after the Employment Appeal Tribunal ruled overtime pay should be used to calculate holiday pay. The £100m figure does not include backdated contributions.
McDonald says firms that take into account total pay – as opposed to basic salaries – when calculating pension contributions could decide to pay staff compensation rather than attempt to incorporate the changes.
He says: “Potentially this is just far too complicated for firms to contemplate. I imagine in reality lots of firms would seek to come to another agreement with the workforce.”
Law firm Pinsent Masons says the ruling 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.”
Saunders adds she expects the tribunal’s ruling to be appealed.