Employers face unexpected calls, writes Malcolm Mackay
We are heading full tilt towards the summer holiday season. After the recent wet and windy weather we have had in Scotland, many of us will be looking ahead to a fortnight of balm in sunnier clines.
Yet many employers might face an unexpected claim for underpaid holiday pay due to those who have put in extra over-time hours.
From 1 July 2015, backdated claims for underpaid holiday will be restricted to two years. That means many individuals and trade unions will be bidding to get claims in before this date to maximise the period of potential back pay.
Under several rulings, including the Court of Justice for the European Union decision on Lock v British Gas and others, and the Employment Appeal Tribunal decision on Bear Scotland v Fulton and others, employers must include overtime in their holiday pay calculations.
While it might be a nice holiday windfall for some employees, it could mean companies taking a considerable hit on their bottom line The rulings have retrospective application so employers may face settlement compensation claims or awards of back pay.
In December 2014, the UK government introduced the Deduction from Wages (Limitation) Regulations 2014 which limits claims by affected employees regarding holiday pay to two years with effect from 1 July.
Many employers are only waking up to the holiday deadline and there are some implications too for potential tax and National Insurance. Not only will employers be liable for the arrears of holiday pay which include overtime, there will also be liabilities relating to tax and NI.
Brian Lovie, a director with BDO, is an employment tax expert, and said: “The rules, as ever, are complex and if not applied correctly could give rise to an unwelcome additional liability on the part of employers.
“The possible tax and NI liability will depend upon the treatment by HMRC of the claim and on whether it is back pay or compensation payment or some other independent arrangement made between the employer and employees. The Lock case also has implications for companies that pay commissions where there may be additional holiday pay outcomes not for additional hours worked but for commission earned.”
He added: “This is a difficult and complex ruling that could have large financial implications for the businesses involved so it is essential that they process these claims correctly and in a timely fashion to avoid penalties or problems with HMRC.”
Meanwhile, the UK government has said in its new Enterprise Bill that it is seeking to make running a business more productive and is cutting back on red tape. All well and good.
One area where this will be particularly prevalent will be in helping to streamline human resources.
SMEs employ over 90 per cent of the UK workforce and the ability to ensure that this can be managed smoothly and with lower costs, plays a major part in helping to enhance growth.
So the proper implementation of programmes such as auto-enrolment for staff pensions is vital. There are concerns that, if not managed correctly, small businesses could lose a large part of their revenue in establishing and maintaining these programmes, seriously hindering long-term growth.
This is another issue for business to consider and one with longer term implications in the workplace. While the first few weeks of the new Westminster government have been characterised by the constitutional issue, employment law issues, which are still the domain of Westminster for the time being, are simmering under the surface.
• Malcolm Mackay is chairman of United Employment Lawyers, a group ofUK law firms offering legal advice in cities and towns across the UK.