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News - 4 November 2014

Trouble over holiday pay ruling


Two cases involving engineering companies could have a dramatic impact on payroll costs for SMEs.

The cases, involving the calculation of holiday pay, are in front of the Employment Appeals
Tribunal, the UK's top employment law court

Workers for these companies claim their holiday pay was less than it should have been because their employers did not factor in voluntary overtime completed in the period prior to time off.

Holiday pay is averaged from the basic wage ahead of the time off and currently does not include what is earned in overtime, or commission.

Simon Walker, director-general of the Institute of Directors, said:
"It is not an exaggeration to say that some small businesses could end up being wiped out if employers who have acted compliantly and in good faith face underpayment claims backdated as far as 1998.”

John Allan, chairman of the Federation of Small Businesses, said: "These rulings could have a significant cost implication for those businesses that pay voluntary overtime or commission and firms will need to look at how they structure pay and overtime.

Lavinia Newman, founder of ABDS comments:
“Some companies, such as John Lewis, have reviewed their policies and set aside a provision to pay the potential backlog.”

The manufacturers' organisation EEF has calculated that small to medium sized firms with a turnover of £30 million could have to pay an average of £2.5 million in backdated holiday pay, plus £250,000 for National Insurance and pension contributions.

A Business Department spokesman said: "The Government wants to get the right balance between the needs of employers and employees. We do not believe voluntary overtime should be included in holiday pay and are concerned about the potential impact on employers.

If you need any help and advice with your PAYE, RTI or CIS, or looking to outsource your Payroll Department, contact ABDS NOW to discuss how we can help.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

Brilliant with numbers   
Great with people  
Clear and precise with advice
Timely and cost effective 
In touch with issues that face our clients and
mindful of their long term strategic goals

Helping Your Business is Our Business

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