By Daniel Hunter

The Federation of Small Businesses (FSB) is warning that a far-reaching ruling from the UK Employment Appeal Tribunal (EAT), could have a significant effect on the UK’s 4.9 million small businesses.

If backdated, it could create substantial unexpected cost liabilities for employers.

The ruling, which will provide the first UK interpretation of a controversial European Court of Justice decision, will decide the extent of UK businesses’ liability for payment of holiday pay in cases where employees routinely earn extra money on top of their basic salary through voluntary overtime. Similar rulings are expected to follow on commission payments.

A recent survey of FSB members found that a third of small businesses with employees (31%) paid staff for voluntary overtime. One in 10 (11%) of small firms with staff also offered some form of commission. This means the ruling could impact as many as 400,000 UK small businesses.

John Allan, FSB National Chairman 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.

“However, our biggest concern would be the threat posed by backdating the ruling. This could trigger multiple claims going back many years and create substantial unexpected cost liabilities for employers.

“It seems extremely unfair that businesses who have tried to do the right thing - getting the best legal advice at the time - could be hit with a bill which no one knew was coming. Government need to make sure that good employers, supplying much needed jobs, are not forced under by a series of backdated claims.”

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